DISH Network’s (NASDAQ:DISH) request to the Federal Communications Commission (FCC) to suspend review of the Softbank-Sprint (NYSE:S) merger, until there is further clarity on the Clearwire deal has been turned down. This means the review will progress as scheduled after the merger is investigated by the DOJ, the Federal Bureau of Investigation (FBI) and the Department of Homeland Security (DHS), for any potential impact on national security, public safety or law enforcement.
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Mixed Signals From Clearwire Management
To add to the existing corporate drama, in a proxy filing with the SEC, Clearwire claimed if a merger with Sprint didn’t happen then the company would be forced to look at restructuring. This is interesting because Clearwire hasn’t summarily rejected DISH’s offer, and has gone on record saying it will consider all offers before making a decision. However, we believe the proxy filing is directed towards the minority shareholders of the company, who have expressed their displeasure with Sprint’s offer of $2.97 a share and feel the board isn’t doing its fiduciary duty by negotiating a higher price for the company.
We believe DISH will not withdraw its bid of $3.30 a share and would be willing to up the offer in a bidding war with Sprint. This would potentially lead to a deadlock, as Sprint requires 75% of Clearwire shareholders to sign off on the merger, and with institutional investors clearly opposed to Sprint’s lower offer, Clearwire would be embroiled in fierce battle for survival.
SoftBank Merger Needs To Happen
After a poor Q4 2012 performance, we believe that Sprint needs the Softbank merger to go through more than ever. With shrinking market share in the postpaid segment, Sprint needs capital infusion from Softbank to compete aggressively going forward. Sprint has been incurring heavy annual postpaid subscriber losses for a long time now, and it was expected that carrying the iPhone would plug the leak. Unfortunately, this hasn’t worked out for the company. While Sprint has been showing net subscriber additions, losses from the unwinding of Nextel far exceed gains.
It is evident that Sprint is losing market share and taking on a huge commitment of nearly $15.5 billion to Apple over a four-year period might have been a bad move in hindsight. This was a massive bet considering the company has a highly leveraged balance sheet with over $24 billion in long term debt and that the iPhone is experiencing significant competition in the smartphone segment. Sprint reported it sold 2.2 million iPhones in the fourth quarter and 6.6 million in 2012.