Clearwire Investors Use Dish to Demand Sprint Raise Offer

Charlie Ergen is becoming the financial savior that Clearwire Corp. shareholders never expected. And he doesn’t even have to open his wallet.

Ergen, the chairman of Dish Network Corp., made a surprise counteroffer of $3.30 a share for Clearwire, topping a $2.97 bid from Sprint Nextel Corp., which already owns more than 50 percent of the wireless-network operator. Clearwire closed as high as $3.30 last week, reaching the level of Dish’s proposal for the first time since it was disclosed Jan. 8.

While a Dish deal is a long shot because it’s subject to conditions that may require Sprint’s approval, it’s enough to embolden Clearwire’s minority investors to push Sprint to at least match the bid. With the stock already at that level, traders are betting Sprint will increase its bid by 11 percent, more than any other similar-sized deal pending in North America, according to data compiled by Bloomberg. Sprint, which needs backing from more than half of Clearwire’s minority shareholders to succeed, is already facing opposition from owners including Taran Asset Management and Crest Financial Ltd.

“Sprint continuing to stand by this $2.97 bid is not going to work,” Keith Moore, an event-driven strategist at MKM Partners LLC in Stamford, Connecticut, said in a telephone interview. “The Dish bid is illusionary. But Sprint still has the problem of having to get enough shareholders to support them.”

Softbank Approval

Sprint said in a Dec. 13 regulatory filing that it proposed paying $2.90 a share to acquire Clearwire. Four days later, it agreed to a bid of $2.97 a share -- or about $2.2 billion. Overland Park, Kansas-based Sprint, the third-largest U.S. mobile-phone carrier, is getting an infusion of cash from Japan’s Softbank Corp., which is buying 70 percent of Sprint for about $20 billion. At the time, Softbank wouldn’t agree to a Clearwire bid above $2.97, people familiar with the negotiations said then.

Before Dish’s rival bid was disclosed, Clearwire had been trading at a discount to the Sprint deal, a sign that investors weren’t expecting higher offers. Analysts weren’t either.

“It’s Sprint or nobody,” Christopher King, a Baltimore-based analyst at Stifel Financial Corp., said last month before Dish stepped in.

Since Dish made its surprise offer, Clearwire’s stock traded between the two bids, until it closed at $3.30 on Jan. 24. At that level, traders are betting Sprint will increase its offer to match Dish’s, according to Alfredo Scialabba, a New York-based special situations analyst at GFI Group Inc.

Today, Clearwire shares rose 2.8 percent to $3.36, the highest closing price since Dec. 14.

Spectrum Value

While the four-year joint venture between Sprint and Clearwire struggled to build a competitive nationwide wireless network, Clearwire still owns valuable spectrum -- the airwaves that are used to transmit voice and data for mobile devices.

For Sprint, full control of Clearwire’s spectrum, which blankets the entire country, would help the carrier shore up its wireless network at a time when smartphones and tablets are fueling a surge in data traffic.

While Clearwire’s board has already approved the transaction, the majority of the stockholders that aren’t affiliated with Sprint or Softbank must also sign off.

“What could happen is that Clearwire’s shareholders decide to, and are able to, vote down the Sprint transaction,” Scialabba said in a phone interview. “The likelihood of Dish winning this battle is minimal, but as long as the value emerges and people understand and clarify what’s really inside Clearwire, this could embolden all the shareholders. That could force the hand of Sprint.”

Shareholder Dissent

Some shareholder dissent has already surfaced. Glenview Capital Management plans to reject Sprint’s current offer, a person with knowledge of the situation said earlier this month, while Taran Asset Management said it will file a complaint with the Federal Communications Commission, arguing that Clearwire is worth more than $2.97 a share. Crest Financial already asked the FCC to block the transaction.

Mount Kellett Capital Management LP, which owns 7.7 percent of Clearwire’s Class A shares, the second-biggest minority stake, sent a letter to Clearwire’s board asking them to consider Dish’s bid.

Sprint has argued that its bid is better because it’s simpler and carries fewer conditions, and that the matter is in the hands of the Clearwire special committee, which has accepted Sprint’s offer. Clearwire has said it plans to talk to Dish and will keep its options open by not drawing on financing offered by Sprint.

‘Highly Conditional’

“Sprint’s agreement to acquire Clearwire is superior to the highly conditional Dish proposal and offers Clearwire shareholders certain and attractive value,” Scott Sloat, a spokesman for Sprint, said in an e-mail Jan. 25.

Mike DiGioia, a spokesman for Bellevue, Washington-based Clearwire who works at JLM Partners Inc., declined to comment. Bob Toevs, a spokesman for Englewood, Colorado-based Dish, didn’t respond to phone or e-mail messages seeking comment.

Dish offered to buy 24 percent of Clearwire’s spectrum and acquire as much as all of the company’s stock. A deal is contingent on at least 25 percent of shareholders tendering and doesn’t need Sprint’s participation, though it’s subject to conditions that may require Sprint’s approval.

Sprint’s majority stake makes it “virtually impossible” for Dish to buy the entire company, said Shing Yin, a New York-based analyst for Guggenheim Partners LLC.

Dish, the second-largest U.S. satellite-television provider, is trying to expand into mobile-phone service and aims to use Clearwire’s airwaves to bolster those ambitions.

Negotiating Tactic

While billionaire Ergen is “always hard to predict,” the takeover bid may be a bargaining tactic to get a hold of some of Clearwire’s spectrum, instead of the whole company, Yin said.

“He obviously would like to buy it at the most attractive price possible,” Yin said. “Right now, to negotiate to buy a piece of that spectrum probably involves negotiating with Sprint, so he put that offer out there to bring them to the table.”

Because the Dish proposal is only a preliminary indication of interest with several conditions, Sprint doesn’t need to respond with a higher bid now, Yin said. Without a binding offer from Dish, it may be risky to block Sprint, he said.

Even if Sprint does boost its price, the company may not be willing to reach the level of Dish’s bid, said MKM’s Moore.

Critical Deal

“I anticipate that Sprint will raise its offer,” Moore said. “But will they raise it to match the $3.30? My guess is they’re going to try not to. I think the stock’s ahead of itself.”

Still, Sprint could offer as much as $3.50 to $3.75 a share to secure the support of minority stockholders, said Kevin Smithen, a New York-based analyst for Macquarie Group Ltd.

“It’s critical that Sprint gets Clearwire closed as soon as possible,” he said in a phone interview. “We just don’t think Sprint wants to risk having any uncertainty or any further delays, either caused by Dish or dissident shareholders.”

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