Can DISH Legally Buy Clearwire?

The ongoing battle for spectrum-laden telecommunications firm Clearwire (UNKNOWN: CLWR.DL  ) has taken a turn from superiority arguments to that of legality. This week, majority equity owner and financier (as well as a pending takeover target) Sprint (NYSE: S  ) alleged that challenging bidder DISH Network (NASDAQ: DISH  ) not only offers an inferior bid to Clearwire shareholders, but that it cannot legally be done. Unsurprisingly, DISH management was quick to disagree. For investors in all three companies, the news has some important implications. Here's what you need to know.

The story
As has been in play since late last year, both Sprint and DISH want Clearwire for its valuable spectrum. Sprint being the current majority shareholder and the coffer from which Clearwire has tapped multiple rounds of short-term financing, it has been long-speculated that Sprint would be the most obvious and natural choice for a buyer. But, ever since DISH began offering superior bids, which have now reached $4.40 per share (more than a dollar above Sprint's bid), minority holders of Clearwire stock have shown strong support for the larger bid.

Sprint management, as well as Clearwire's board, has issued multiple statements laying out why DISH's larger per share offer is misleading and ultimately not in the best interest of shareholders, but now that tone has shifted.

Dan Hesse, CEO of Sprint, wrote to Clearwire's board illuminating his company's belief that DISH's offer violates Delaware law (where the company is incorporated) and conflicts with the terms of Sprint's investment in Clearwire.

DISH's Charlie Ergen quickly responded with the following (paraphrased here):

  • Entering into the covenants does not violate Delaware law, and neither law nor incorporation documents prohibit Clearwire from granting pre-emptive rights.
  • DISH financing does not require Sprint's consent.
  • DISH's offer does not require 75% of shareholder approval in addition to Comcast's approval.

The response was very thorough, and included enough legal jargon to confuse most minority shareholders who do not have a legal firm on retainer.

Coming up
Some believe that DISH management has created this delicate M&A dance between it, Clearwire, Sprint, and SoftBank, not to necessarily own either Clearwire or Sprint, but to coerce parties into making an agreement that awards DISH spectrum and to prevent SoftBank from owning Sprint outright.

This would allow for the three companies to work together, aiding DISH in its quest for a wireless network that piggybacks on the existing networks of the other companies.

As has increasingly been the case with this story, the details are relatively confusing, and the ultimate motives may not yet have been revealed to the public. But, for DISH investors who have bought into the idea of DISH as a telecom power play, the various outcomes of this debacle nearly all point toward a favorable situation for the satellite television provider.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 07, 2013, at 1:01 PM, spokanimal wrote:

    The level of anger and frustration evident in Hesse's "legality" response to Dish's significant over-bid for Clearwire presents an insight into just how opposed Softbank's Masayoshi Son is to having Dish hanging around as a large, minority shareholder.

    Hesse's response would have been more subdued and less of a public projection if there were any kind of behind the scenes negotiating going on for an arrangement that shares or spins-off any of Clearwire's spectrum for Dish's use in some kind of eventual partnership with Softbank or Sprint.

    That said, I believe that Hesse's blunt response is more indicative of an upcoming over-bid for Clearwire from Sprint than it is of any collaborative agreement with Dish of any kind.

    Spokanimal

  • Report this Comment On June 09, 2013, at 8:01 AM, cjmac136 wrote:

    The war of words between Sprint and DISH and the more direct and personal war of words between SoftBanks CEO, Masayoshi Son and the head of DISH, Charlie Ergen certainly would lead one to believe a collaborative effort in the market with these companies is not in their plans.

    Sprint, although professing to have a better bid for Clearwire is obviously posturing as both bids are all-cash offers and DISH's offer is a dollar higher per share. However Sprint is hoping to leverage the convoluted governance structure with Clearwire that was established at its initial startup along with highly biased subsequent operational agreements too capture all the value in Clearwire's assets for their own gain. Interestingly enough, it seems neither DISH nor SoftBank are all that interested in Sprint without Clearwire in tow, as both company heads have expressed verbally and through actions, such as Masayoshi Son openly discussing a deal for T-Mobil with control of Clearwire assets being in question.

    The obvious answer would be for both DISH and SoftBank to focus future offers on Clearwire, however both are hampered by Sprint and their refusal to allow an open bid process for fear of being left standing without a chair when the music stops. Unfortunately all of this is further complicated by a Clearwire management the by all appearances prefer to be shackled to Sprint through the fore mentioned agreements, rather than to maximize their own shareholders value.

    The best thing Clearwire shareholders have going is a very smart Charlie Ergen wants into wireless and Clearwire is the obvious conduit for him.

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