Clearwire’s Board Dumps Its Merger Plan With Sprint, Recommends Dish

Clearwire’s board dumped its merger plan with Sprint (NYSE:S) and recommended to vote in favor of Dish Network‘s (NASDAQ:DISH) higher bid on June 24. The new development puts more pressure on Sprint, which is eager to acquire rest of its stake in Clearwire. While the battle for stake in Clearwire continues, the new recommendation is a welcome move for Dish. Irrespective of outcome with Sprint, Dish will pursue its wireless ambitions by either creating its own network or partnering with existing players. In either case, Clearwire’s spectrum will be very useful for the company for rolling out 4G services.

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Why Is Everyone Interested In Clearwire?

While Clearwire is an important part of Sprint’s plan to compete against Verizon (NYSE:VZ), AT&T (NYSE:T) and T-Mobile (NYSE:TMUS), Dish is eager to enter into wireless space since it owns a pool of spectrum and needs a network to bring that spectrum to use. The company is looking to expand into the wireless market because its traditional pay television business has matured. Clearwire owns vast under-exploited spectrum and it has its own network under the brand “CLEAR,” but it needs to expand.

Softbank, a Japanese carrier, has bid for Sprint and wants it to hold a majority stake in Clearwire. Verizon is interested in Clearwire’s spectrum as well. In the long run, every operator will need all the spectrum they have, twice over. ^[1] There are a number of players chasing Clearwire and this may not be the end of bidding war. It will be interesting to see how Sprint reacts to Clearwire board’s recommendation of Dish’s bid.

What Is Clearwire To Dish?

Clearwire had initially agreed to sell its remaining shares to Sprint for $2.97 a share in December 2012, but Dish came with a higher bid of $3.30 the following month. Sprint raised its offer to $3.40 a share in May 2013 in the face of opposition from numerous Clearwire shareholders, but Dish came up with another offer for $4.40 a share later that month. ^[2]

Sprint already holds 51% of Clearwire, and it is unlikely it would give up its stake to Dish. Dish, on the other hand, is happy with anything over and above 25% of equity. ^[3] But what could a 25% stake mean for the company? Dish Network is seeking governance rights and few seats in the board of Clearwire, but more than that, gaining a stake may help Dish force Sprint to reconsider SoftBank as its partner.

If Sprint needs Clearwire and Dish becomes the key minority holder of the company, it would make more sense for Sprint to partner with Dish. Clearwire also has its own network which needs expansion, but it is a vast pool of wireless airwave licenses that Dish is after. With $8 billion of cash on its balance sheet, Dish has been making some aggressive bids.

Apart from Clearwire and Sprint’s $26 billion bid, the company recently offered $2 billion for the spectrum of Lightsquared. (See: Dish Eyes More Spectrum With LightSquared Bid Dish needs a strategic partner to pursue its wireless ambitions, and the latest recommendation of Clearwire’s shareholder is an encouraging sign. All eyes will now be on Sprint’s reaction.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Investor wants Clearwire to sell spectrum, prevent a Sprint buyout, CIO, Nov 2, 2012 [↩]
2. Dish’s and Sprint’s SEC Filings [↩]
3. Dish Ups Clearwire Bid In A High Stakes Game Of Poker With Softbank, Trefis, May 31, 2013 [↩]