Sprint’s bidding war with Dish Network for 4G provider Clearwire seemed to have come to an end June 12, with the Clearwire board’s unanimous recommendation to vote against Sprint’s latest offer of $3.40 per share and unanimous recommendation to accept Dish’s $4.40-per-share bid.
However, Sprint, which already owns a 50.2 percent share of Clearwire, announced June 17 that it has filed a lawsuit against Dish Network and Clearwire, claiming that the deal with Dish violates the law in Delaware, as well the “rights of both Sprint and Clearwire’s other strategic investors under Clearwire’s charter and under the Equity Holders Agreement (EHA).”
Sprint said it also wants to rescind certain parts of Dish’s tender offer agreement, and additionally wants “declaratory, injunctive, compensatory and other relief.”
In a complaint filed in Delaware, Sprint offered some insider perspective on the events of the last few months.
“Dish wants spectrum. Clearwire has spectrum but has struggled financially,” it wrote.
“Before entering into the Sprint Merger Agreement [on Dec. 17, 2012], Clearwire sought to engage Dish in discussions, but Dish refused to negotiate and did not make a meaningful proposal. After the announcement of the Sprint Merger Agreement, however, Dish feared that by solving Clearwire’s financial problems, a combination of Sprint and Clearwire would eliminate Dish’s negotiating leverage to acquire spectrum on the cheap, so Dish embarked on a plan to tank the merger.”
Dish’s strategy for the latter, it continued, focused on “fooling” Clearwire’s minority stockholders into believing they’d get a better price from Dish than Sprint. When that didn’t work out, said Sprint, Dish seemed to “give up on Clearwire and instead turned its attention to trying to acquire Sprint.”
Sprint and Japanese carrier Softbank announced a $20.1 billion merger deal in October 2012. In April 2013, Dish offered Sprint $25.5 billion to merge.
On June 10, Sprint announced that Softbank had added $4.5 billion to its offer—money that will entirely go to Sprint shareholders—and that after considering Dish’s offer, or what it complained was not exactly an “actionable offer,” it had “ended its discussions” with Dish.
A week earlier, Sprint wrote to the board of Clearwire, pointing out that the Dish offer violated Delaware law and Clearwire’s EHA.
Dish Chairman Charles Ergen responded with his own letter, saying that Sprint was trying to mislead Clearwire stockholders and, further, Dish’s deal offered Clearwire an option to back out of the Sprint offer and get on a path toward becoming a “self-sustaining company.”
According to Sprint’s legal complaint, on May 29, two days before Clearwire stockholders were to vote on the proposed merger with Sprint, Dish “re-appeared” with a new offer at a higher price, “no longer conditioned upon a purchase of spectrum at a bargain price, but … still conditioned upon obtaining governance rights that Clearwire had previously recognized it had no power or right to give.”
The Clearwire board, “with no solution to its looming financial crisis … panicked and its positioned changed.”
The complaint goes on to say that Clearwire then decided to move forward with an agreement containing the same provisions it already knew it couldn’t grant, thus the violations to the EHA and Delaware law.
“All that is bad enough,” says the complaint, before going on to explain that Dish’s offer also encourages Clearwire’s minority stockholders to tender their stock to Dish, “which has everything to gain from a failure of Clearwire.”
Sprint is asking that the court enforce the EHA and Clearwire’s Charter by “enjoining the tender offer.”
Dish issued a response to the lawsuit June 18, calling it a “transparent attempt to divert attention from its failure to deal fairly with Clearwire’s shareholders, as well as to exploit its majority position to block Clearwire’s shareholders from receiving a fair price for their shares.”