Sprint Wants Dish Out of Clearwire

Satellite, Wireless Firm Battle For Control Of WiMax Pioneer
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Dish Network’s decision to drop its pursuit of Sprint Nextel to focus instead on its ongoing tender offer for a piece of WiMax pioneer Clearwire capped a flurry of activity last week in what has become a three-way battle between the satellite giant and its two wireless counterparts.

Dropping its Sprint proposal came as little surprise — the wireless firm earlier this month said it would recommend a sweetened off er of $21.6 billion from Japanese wireless carrier SoftBank for a 78% interest in the company. But as Dish gears up to redouble its efforts for Clearwire, Sprint moved to block the deal with a suit filed in Delaware Chancery Court, claiming that Dish’s tender offer for Clearwire violates its existing agreements.

Sprint, which owns a 50.2% voting interest in Clearwire, has been at loggerheads with Dish ever since the satellite giant made an unsolicited counteroffer 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 off er for Clearwire, only to be bested by Dish.

Dish made a separate tender off er for Clearwire in May, proposing to pay $4.40 per share for outstanding Clearwire stock, about $1 per share more than Sprint had proposed.

Last Thursday, Sprint upped the ante once again, raising its bid to $5 per share. That latest off er was endorsed by Clearwire, which said it would hold a special shareholder vote on the matter on July 8. While Dish initially remained silent, there is still the possibility that it will again raise the stakes.

In the meantime, Sprint has a backup in the Delaware lawsuit. In its 45-page complaint, Sprint claims the tender off er violates Delaware law and converts the rights of Sprint and other Clearwire stockholders.

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

According to Sprint, the IRA grants Dish governance rights, including the 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 off er in December 2012, and was rebuff ed. 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 said the Sprint lawsuit has little merit.

“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,” the statement said. “Dish is confi dent 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.”

TAKEAWAY

Sprint is suing to block Dish Network’s tender offer for Clearwire shares, claiming the only reason its bidding for the stock is to stop Sprint from gaining control of its spectrum.

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