Sprint vs. Dish: Corporate Theater for Our Times

Photograph by Bruce Bennett/Getty Images

Another knock on the argument that markets are efficient, omniscient, and all-predicting: Clearwire, a wireless company that was left for dead by many shareholders mere months ago, is suddenly the object of a somewhat-kabuki bidding war between Sprint Nextel (another wireless player whose own solvency was recently in question) and Dish Network, a satellite TV provider not commonly associated with wireless. Clearwire shares, which were at 83 cents in July, are now bid for $3.30 by Dish, valuing the company at $5 billion. Spite, chessmanship, and regulatory meddling are all being cited as motivators of Dish Chairman Charlie Ergen’s long-shot offer.

Confused? Do be. Because this corporate drama is as much about the generosity of today’s QE3-charged debt markets—where the hunt for yield is driving just about everything—as it is about the hunt for spectrum.

Sprint is one of the country’s top issuers of junk bonds, and is the biggest single weighting in the hugely popular Barclays SPDR High Yield Bond Fund; Dish, for its part, is No. 7. Even before the wireless laggard’s October rescue by Softbank, Sprint was constantly able to win forbearance from the debt capital markets, something that likely would not have happened in tighter, more risk-averse times.

Two months prior to Softbank’s $20 billion premium offer to control 70 percent of Sprint—before markets ever knew that a huge Japanese white knight was about to gallop into town—the wireless carrier announced that it had closed a $1.5 billion offering for senior notes due in 2020 that yield 7 percent, a placement co-managed by JPMorgan, Deutsche Bank, Barclays Capital, Merrill Lynch, Citigroup, and Goldman Sachs. On the same day, Sprint announced the retirement of debt maturing in 2013 and 2015. Though the company was widely derided for botching the acquisition of Nextel and cutting corners on its next-generation wireless build-out—its shares were recently worth a tenth of what they were in mid-2007—its funding window from Wall Street remained open long enough to survive the worst credit crisis in a generation and give it the checkbook to consolidate Clearwire.

“If you’re Sprint,” says Pivotal Research analyst Steve Sweeney, “you were able to refinance debt, get access to capital, and then win a giant corporate parent and balance sheet in Softbank. People just didn’t know that Softbank was going to buy Sprint.”

Back to Clearwire. In a stingier, more expensive market for corporate bonds (yields were well into the double digits during the financial meltdown), this capital-starved operation would be getting picked apart in bankruptcy. Now, in the wake of all the aforementioned financings, refinancings, and two major junk-bond issuers’ largess, its board is in the luxurious position of considering how it can wring more money from Sprint or Dish.

Dish’s $3.30-a-share offer is throwing a wrench into Sprint’s December offer to control the rest of Clearwire it didn’t already own for $2.97 a pop. Again, this was an 80-cent stock in the summer. Though the companies’ joint venture to build a nationwide wireless network was burning through cash, Sprint Chief Executive Dan Hesse has said the Clearwire deal was “critical” to Sprint’s turnaround. Even so, Softbank wouldn’t green-light a bid above $2.97 a share, people familiar with the negotiations said last month.

“Ergen,” says Sweeney, “has nothing to lose. He is creating his own leverage to try to exact whatever concessions he can, whether from Sprint or Washington,” ahead of auctions for critical spectrum that both Dish and Sprint covet.

Ergen seems to like playing hardball. In July, Dish dropped AMC Networks from its satellite TV lineup, only to reinstate the Mad Men and Breaking Bad network group as part of a settlement in relation to a prior lawsuit. In August, Ergen made an abortive $4 billion run at wireless carrier MetroPCS Communications, according to company filings.

“We look forward to working with Clearwire’s Special Committee as it evaluates our proposal,” Tom Cullen, Dish executive vice president of corporate development, said in a prepared statement Tuesday. The company said it had no further comment.

Is it another sign of the largely unbothered high-yield bond market that big issuer Dish is apparently unbothered by the balance-sheet hit that could come with diving headlong into wireless? “We believe the incremental capital and operating costs related to Dish’s potential wireless network build-out will diminish the company’s ability to generate free cash flow and erode operating margins, potentially resulting in a weaker credit profile,” remarked Fitch Ratings in its Wednesday take on the unsolicited bid.

While Clearwire has made no decision to reconsider Sprint’s original offer, it has said it will talk to Dish and will keep that window open by not drawing on the recently life-or-death financing provided to it by Sprint.

To sum up: In junk, yesterday’s beggars can be today’s choosers.

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