Sprint Nextel (NYSE:S) was knocked back on its heels last week by DISH Network's (NASDAQ:DISH) counteroffer of $4.40 a share for Clearwire (UNKNOWN:CLWR.DL), a bid fully 32% higher than Sprint's bid of $3.40.
Not ready to come back with a counter-counteroffer, Sprint announced it sent a letter to the Clearwire board warning the DISH bid is "not actionable." Why? Because "certain provisions [of the proposal] violate Delaware law, Clearwire's certificate of incorporation or the rights of the parties to the existing Clearwire Equityholders' Agreement (EHA), including Sprint."
Here is Sprint's reasoning laid out in the letter signed by Sprint CEO Dan Hesse:
Where a board of a corporation such as Clearwire with a controlling stockholder takes action to interfere with the rights of the controlling stockholder, it must show a compelling need to do so. In particular, an opportunity for minority stockholders to obtain a premium is not sufficient. Delaware law does not impose on controlling stockholders a duty to engage in self-sacrifice for the benefit of minority stockholders."
Sprint is the controlling Clearwire stockholder with just over 50% of its shares, and the minority shareholders mentioned include Crest Financial, which has been leading a proxy battle opposing any sale of Clearwire that does not reflect the true value of its spectrum resources.
Crest has welcomed the DISH proposal. "DISH's tender offer has shifted the battle for Clearwire's valuable assets to where it belongs -- a competitive bidding process for Clearwire," Crest wrote in a letter to Clearwire's board.
Even if the DISH proposal provided for an amendment to Clearwire's certificate of incorporation to modify Sprint's rights according to the EHA, "such an amendment would require Sprint's consent as a stockholder ... which Sprint will not give," Hesse wrote.
Sprint's protestations notwithstanding, DISH's proposal does appear more viable than its original offer for Clearwire last January. Though that first bid of $3.30 a share was 11% higher than Sprint's then $2.97-a-share offer, the DISH package had enough strings attached that the Clearwire board did not take it seriously.
This time, however, in an initial review of DISH's new offer, a Clearwire special committee conceded, "the proposal appears to be more actionable than DISH's previous proposal."
The special stockholders' meeting to vote on accepting Sprint's proposal has been put off twice now. The first time after Sprint raised its bid from $2.97 a share to $3.30, and the second time after DISH's new offer of $4.40 a share.
The newest date is for June 13, but will it have to be put off one more time for the courts to evaluate Sprint's argument that Clearwire selling itself to DISH's is not a "compelling need."
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