US DTH provider Dish Network has joined the race to acquire wireless operator Clearwire making a higher offer for its shares than rival suitor Sprint’s bid.
In a complex deal that also includes US$2.2bn for a large amount of Clearwire’s spectrum,…
US DTH provider Dish Network has joined the race to acquire wireless operator Clearwire making a higher offer for its shares than rival suitor Sprint’s bid.
In a complex deal that also includes US$2.2bn for a large amount of Clearwire’s spectrum, Dish aims to buy up to all of Clearwire’s common stock for US$3.30 per share. This represents an 11% premium on the December 2012 offer previously submitted by Sprint, which already holds a 63% stake, for the shares it does not already own.
However, Clearwire said the new offer is subject to numerous material uncertainties and conditions – some of which require the approval of its majority owner Sprint.
Sprint has already described Dish’s offer as not viable because of these conditions, which include a series of interdependent commercial agreements, debt and equity purchases and spectrum sales. The entrant of a rival suitor for Clearwire will nonetheless delay crucial growth plans for Sprint, which had aimed to close the deal in mid-2013.
Dish has only recently been given regulatory approval to repurpose its satellite spectrum to deploy a terrestrial LTE network. But the company has made no secret of the fact that it needs more frequencies and a terrestrial partner to provide nationwide LTE services, which are now tied to deployment milestones as part of its regulatory approval. Its offer for Clearwire therefore also includes a commercial agreement that would see the telco build and run a network on behalf of Dish.
The proposal would also force Clearwire to scrap an offer by Sprint to provide it with US$800m in additional financing in the form of exchangeable notes over ten months. Under this agreement, Clearwire has the option of selling Sprint US$80m worth of the notes, which are convertible into its common stock at US1.50 per share, every month from 2 January 2013. As a result of the Dish offer, however, Clearwire has decided not to take the initial US$80m payment to allow the negotiations to continue.
Indeed, despite the stringent conditions tied to this new bid, Clearwire said it has a duty to negotiate the offer with Dish, although the special committee of its board of directors had no plans to change its recommendation for the Sprint offer.
Speculation over Dish’s game plan
Because Sprint has made it clear that it has no intention of selling its stake to give Dish control of the asset, analysts have speculated a number of possible strategies that could be behind the new offer.
According to analysts at New Street Research, this could be a push for a higher bid from Sprint, or part of a plan for it and Clearwire to give Dish spectrum or network sharing opportunities on more favourable terms. It could even be a push for Sprint to buy Dish or its spectrum assets.
“For Dish’s proposal to really have an impact they would have to remove most of the conditions from the offer to purchase shares so that the offer becomes ‘real’,” it said in an analysts note.
It added that the DTH group would also likely need to increase its offer to around US$5 per share. Further to this, if the DTH group was able to acquire 25-35% of Clearwire with some minority protections, it could hamper Sprint’s ability to extract value from the asset and force it to take Dish out on stronger terms. New Street Research said this higher share offer would be strengthened if Dish also offered alternative interim financing on substantially better terms than the Sprint exchange notes.
Fierce battle likely for Clearwire
In any scenario, spurred by a new owner in Softbank, Sprint is unlikely to back down from plans to acquire all of Clearwire’s shares without a fight.
Softbank, a conglomerate with mobile operations in Japan, aspires to build Sprint up into a heavyweight mobile operator to compete with the likes of AT&T and Verizon. The Japanese mobile operator announced plans in October to acquire Sprint in a US$20.1bn deal. Just a few months later in December Sprint submitted its offer to buy the rest of Clearwire. The Clearwire deal is seen as an integral part of its strategy to gain scale in the United States. Without it, Sprint could struggle to compete in the mature mobile market.
But, in a development that could complicate these transactions further, Clearwire shareholder Crest Financial has recently revealed its intention to oppose Sprint’s proposal to acquire the rest of Clearwire. The activist investor, which owns roughly 8% of Clearwire’s outstanding stock, has joined fellow minority investor Mount Kellett Capital Management in criticising Sprint’s offer as undervaluing the asset. Mount Kellet has said previously that the true value of Clearwire shares is around US$6.30 per share.
Sprint’s offer represented a premium of 128% on Clearwire’s closing share price the day before Softbank’s takeover discussions with Sprint were revealed.
Evercore Partners is Clearwire’s financial adviser for the takeover offers, and Kirkland & Ellis is providing legal advice. Centerview Partners is financially advising Clearwire’s special committee, with Simpson Thacher & Bartlett and Richards, Layton & Finger acting as counsel.
Citigroup is financial advisor to Sprint while Skadden, Arps, Slate, Meagher & Flom and King & Spalding are acting as counsels.
As SatelliteFinance was going to press Clearwire’s stock was trading at around US$3.15 per share, after increasing from around US$2.2 per share a month before.
