Dish Network's Buyout Bid Further Tangles Sprint's Merger Options

By Wayne Rash  |  Posted 2013-05-06

Dish Network's Buyout Bid Further Tangles Sprint's Merger Options

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.


Dish Network's Buyout Bid Further Tangles Sprint's Merger Options

Meanwhile, Dish is offering to buy all of Sprint, and Dish has its own supply of spectrum, making the spectrum from Clearwire less critical. What Dish doesn't have is experience running a wireless telecom company. But Dish may have a solution, according to rumors reported by Investors Business Daily, in the form of Mexican Billionaire Carlos Slim. Slim not only has almost as much money as Warren Buffett and Bill Gates, but he has a phone company already operating a wireless company in the US.

Slim's company, American Movil, owns the TracFone prepaid network. This network is owned in part by AT&T, but Slim owns most of it. TracFone, however, does not own its own spectrum. But if Investors Business Daily is right, it doesn't need it if Slim partners up with Dish, which has plenty. While TracFone uses AT&T's network, there are other synergies, including that Dish and American Movil are involved in a satellite television operation in Mexico, so they're already used to working together.

So where does this leave Clearwire? If Dish succeeds in buying Sprint, it can then buy Clearwire without opposition. This would give Dish two wireless networks, Sprint and Clearwire, rolled up in one company and Dish would own everything.

Dish is betting that its offer to Sprint will be seen as superior to Softbank's offer in two ways. First, it gives the shareholders more money, and second, Dish is based in the U.S., which is likely to be seen more favorably by the Federal Communications Commission and other regulators. But there's another twist.

By stepping up with a formal intent to buy Sprint, Dish has effectively put the Softbank merger on hold. This in turn means that Clearwire isn't going to be bought by Sprint, because Sprint needs Softbank's money to buy Clearwire. Dish, especially if the company is teaming with Carlos Slim, will have the money to allow Sprint to buy Clearwire.

On the other hand, if the transaction with Clearwire doesn't happen quickly and if the Dish acquisition proposal drags on, Clearwire may run out of funds and declare itself bankrupt. It's not clear what would happen to the spectrum Clearwire currently owns if this would happen, but it would make Sprint worth less money because its share of Clearwire would be worth less. That, in turn, would make Sprint's value drop.

So what's actually going to happen? Nobody knows, but if Sprint's Special Committee were to decide that Dish was making a superior offer, that would clear some of the uncertainty. However, Softbank would likely sue and that could delay the merger. And have we mentioned that there's a rumor that Verizon Wireless might want part of Clearwire? One thing is clear, however, and that's the likelihood that this situation will become more complicated before it's over.


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