Just when you thought things couldn't get any more complicated in Sprint's three-way merger drama between the wireless carrier, Japanese wireless carrier Softbank and satellite television company Dish Network, they got even more tangled.
Two things happened in rapid succession on May 6 that at first seemed at odds. First, Clearwire announced that the company had sent a letter to stockholders explaining why the offer by Sprint to buy the company was best. Shortly after that, Sprint announced that it had received the formal HSR notification that Dish Chairman Charles Ergen was planning to buy the company.
So what's an HSR notification? When some entity plans to buy more than half of a publicly traded company, the Hart-Scott-Rodino Act (an add-on to antitrust laws) requires notification. And in this case it required Sprint, which is the acquisition target, to file statements with the U.S. Department of Justice and the Federal Trade Commission about operations, revenue and shareholdings. The idea is to let shareholders decide when an offer to buy a company is adequate and to disclose the fact that offer is on the table.
The HSR notification was no surprise. Assuming that the Dish offer to buy Sprint was serious, and there was every reason to believe it was, the notification was required under antitrust laws. But this may be the only simple factor about this whole merger drama. When you mix in Clearwire, a possible Mexican billionaire and a Japanese telecom company, things get really tangled.
Clearwire's letter to its stockholders was also expected since the company's board has repeatedly said that it prefers Sprint's bid over the offer from Dish Network. Dish, as you may recall, offered to buy Clearwire early in 2013, despite the fact that Sprint already owns more than half of it. But the problem is that Dish offered shareholders of Clearwire more money for their shares than Sprint did. And even though Sprint was offering to buy the rest of Clearwire at a premium, this had the potential to stall the deal.
While Sprint may own a majority of the shares, it needs to muster a supermajority of shareholders to approve the deal. Dish apparently thinks its offer to Clearwire will keep Sprint from finishing the takeover. But the letter to the shareholders was very specific in its reasoning for preferring the Sprint offer over the offer from Dish. In fact, the letter laid out five alternatives, including bankruptcy, and explained why the alternatives, including a sale to Dish won't work.
The bottom line is that while Sprint may not be able to force Clearwire shareholders to accept Sprint's offer, it doesn't have to sell its majority share of Clearwire to Dish, either. This would result in a divided ownership that would ultimately doom the company.