It seemed as though Clearwire (NASDAQ: CLWR) was going to have to accept the piddling $2.97 per share offer made by Sprint (S +0.00%) to buy out the other half of the company it didn't already own. Japan's SoftBank was funneling a ton of money to Sprint for a 70% stake in the carrier as a means to break into the wireless world, and Clearwire's spectrum was just the thing it needed to do so without having to build out its own network. With major shareholders like Intel (INTC +2.31%) and Comcast (CMCSA 1.19%) signing off on the deal, there was little outside stakeholders could do.
Then last month DISH Network (DISH +0.00%) got approval from the FCC to use its satellite frequencies as a wireless network and suddenly all that unused spectrum in Clearwire's portfolio looked very attractive. It just made an unsolicited bid yesterday of $3.30 a share for the wireless company -- an 11% premium to Sprint's offer -- sending Clearwire's stock soaring 9% after hours. If approved, DISH would be able to leapfrog into the industry without having to build out its own network.
One lump or two?
In theory, DISH is offering to buy the whole company, but Sprint isn't likely to fork over the 50% share it owns, so really the bid is for the other half. And while the prospect of a bidding war sounds attractive, it seems difficult to see how a major shareholder like Comcast, which has been battling DISH for viewership, will approve a takeover by its rival that will create an attractive opportunity for subscribers to jump ship (though it did agree to sell its shares to Sprint even if the SoftBank deal fell through).
Still, last month it was rumored Sprint and Comcast had been in talks for a partnership where the two would split revenues from DISH's 14 million satellite TV subscribers who sign up for wireless service. Such a joint venture would seemingly be a win-win deal for the two companies, not to mention investors who would get an enhanced premium for their stock.
Sprint has long been the underdog in the wireless market, always following on the heels of Verizon (VZ +0.57%) and AT&T (T 0.07%). An opportunity to gain more subscribers and access to airwaves would be an attractive option for the carrier.
Cutting the cable
It's also a deal DISH needs, as analysts think satellite TV subscriber rolls will shrink this year. According to Credit Suisse, a lagging economy along with fewer households being created will create pressure on satellite TV providers like DISH and DIRECTV (DTV +0.00%), with subscribers falling by 200,000 households. Obviously, it's not heralding a "cutting the cord" stampede, but it does indicate that with a growing number of options available to viewers, the need for satellite and cable TV is decreasing.
Streaming video is seen as the primary channel of future growth and with Hulu, Vudu, and Netflix (NFLX +0.28%) offering viable entertainment options, who's to say subscribers will plug in the cord again when the economy turns around?
Even Verizon recognizes the trend, despite the growth and expansion of its FiOS network. Its venture with Coinstar's (CSTR +0.00%) video rental service Redbox to offer a Netflix-like streaming service poses a threat. And it should be pointed out that DISH bought Blockbuster's assets in bankruptcy, so you'll soon be able to buy mobile phones while checking out a movie.
Sprinting to the finish line
If Sprint encourages the DISH deal and gets SoftBank to agree to it, it gives the carrier a revenue stream that otherwise might not be available to it and saves money that can be used elsewhere. But recall the investment house wanted Clearwire's spectrum for itself, and part of the agreement provides $800 million in additional financing that would be exchangeable for Clearwire stock at $1.50 per share. It might not be an easy sell.
I thought Clearwire was the clear winner from the beginning when the first offers were made, but as time dragged on and nothing new was forthcoming, I figured investors would need to resign themselves to what many felt was an inadequate offer by Sprint. But perhaps all along it was really meant as a floor for other bids in the hope that someone like DISH would step forward and up the ante.
Of course, even at $3.30 a share, Clearwire's stock would be trading at about half the level it was at two years ago, but considering the low point it hit last fall when shares dipped under a dollar a stub, it's a remarkable recovery... and one which might not yet be played out.
