Sprint Sues To Block Dish/Clearwire Tender

Says Tender Offer Violates Existing Agreements

The ongoing three-way battle between Dish Network, Sprint Nextel and Clearwire was raised a notch on Tuesday, after Sprint sued Dish Network in Delaware Chancery Court, claiming the satellite giant’s tender offer proposal for Clearwire violates its existing agreements with the phone conglomerate.

Sprint, which owns a 50.2% voting interest in Clearwire, has been at loggerheads with Dish ever since the satellite giant made an unsolicited counter offer for the WiMax pioneer in January, trumping a bid by Sprint to buy out Clearwire’s remaining interest. Since that time Sprint has raised its offer for Clearwire, only to be bested by Dish. Dish also made a $25.5 billion offer for all of Sprint, competing with an earlier $20.1 billion offer for the company by Japanese wireless giant SoftBank.  On June 10, Sprint said its board of directors had deemed a revised $21.6 billion SoftBank proposal was superior to the Dish offer.

Dish made a separate tender offer for Clearwire in May, proposing to pay $4.40 per share for outstanding Clearwire stock, about $1 per share more than Sprint had proposed.  That deal appeared to move forward last week when Clearwire’s board said it deemed the Dish proposal superior.

In its 45-page complaint, Sprint claims the tender offer violates Delaware law and converts the rights of Sprint and other Clearwire stockholders.

Specifically, Sprint says that an Investor Rights Agreement and a Note Purchase Agreement that are requirements of a Dish deal violates its existing Equityholders Agreement and Delaware law.    

According to Sprint, the IRA grants Dish governance rights, including ability to nominate its own slate to Clearwire’s board of directors and to veto amendments to Clearwire’s charter and bylaws, as well as pre-emptive rights over any new issuance of Clearwire stock, with certain exceptions.

Clearwire also claims that the NPA requires Clearwire to purchase notes from Dish at such a high interest rate (12%) that it would force the company into bankruptcy, allowing Dish to snap up Clearwire’s wireless spectrum at a bargain price.

Sprint makes it clear in the suit that it believes Dish’s only interest in Clearwire is to acquire its spectrum and squash a Sprint deal.

In the complaint, Sprint claimed that Clearwire had approached Dish about a possible deal before the Sprint offer in December 2012, and was rebuffed. Only after Clearwire accepted Sprint’s proposal did the satellite giant become interested.

“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,” Sprint claimed in the suit Sprint added that Dish has focused solely on “fooling” Clearwire shareholders that they will receive a better deal with Sprint.

In a statement, Dish disputed Sprint's claims.

“Sprint’s lawsuit is 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," Dish said in the statement. "Dish is confident that its superior offer, which has been unanimously recommended by the Clearwire board, including the majority appointed by Sprint, will be upheld and Clearwire shareholders will be free to realize the 29% premium represented by the Dish offer.”