Wireless network operator Clearwire Corp. (CLWR) agreed last month to be acquired by Sprint Nextel Corp. (S) for $2.97 per share. On January 8, Clearwire received an unsolicited offer from Dish Network Corp. (DISH) for $3.30 per share. Clearwire's board plans to discuss the proposal with Dish, and has made no decision on whether to continue considering Sprint's offer. Sprint will likely adjust its offer shortly.
Dish, a satellite television company, has plans to enter the mobile data market, and wants Clearwire's spectrum for that endeavor. The Dish bid is 11% higher than Sprint's, and values Clearwire at about $5.15 billion. Under the terms of the deal, Dish is really offering to buy about one quarter of Clearwire's spectrum for about $2.2 billion, which would not be a terribly bad deal for Sprint, given that Sprint is a majority owner of Clearwire.
It may be difficult for Dish to acquire any portion of Clearwire, and Sprint may be disinterested in allowing Dish to break up the spectrum Clearwire holds. It may be that Dish sees Sprint's ambitious attempt to consolidate spectrum as an opportunity to grab some of it. Nonetheless, Dish's offer will require Clearwire to consider it, and possibly cause Sprint to create a counter-offer in a manner where Clearwire divests some of its spectrum to Dish, while selling the rest to Sprint.
Sprint got approval from Softbank (SFTBY.PK) to pay up to $2.97 per share for Clearwire. In October, Softbank, the third-largest mobile services provider in Japan, and Sprint came to an agreement where Softbank would acquire 70% of Sprint for about $20.1 billion. This hard-cap may require Sprint to split up Clearwire in order to procure the majority of Clearwire's spectrum.
Earlier this month, Clearwire investor Crest Financial announced that it would ask the U.S. Federal Communications Commission ("FCC") to block Sprint's takeover of Clearwire. Crest Financial claims that the deal undermines the value of Clearwire's spectrum and may also argue that Dish's bid still undermines its value. Crest Financial already initiated a shareholder lawsuit seeking to stop Softbank's deal to acquire 70% of Sprint.
If allowed to wholly acquire Clearwire, Sprint would become the nation's largest holder of spectrum. This would also mean that if Softbank's deal for Sprint went though, that the nation's largest holder of spectrum would be controlled by a foreign entity. Softbank would then control the third largest mobile providers in both Japan and the United States and some of the most important mobile spectrum, which would be necessary for its plan to compete against the dominant U.S. mobile carriers, Verizon (VZ) and AT&T (T) by providing more data options, including unlimited data plans.
Softbank has been Japan's leading seller of smartphones since 2007. Softbank took a good deal of its Japanese market share by having an exclusivity contract with Apple (AAPL) for the iPhone. Softbank enjoyed iPhone exclusivity several years, much like how AT&T had iPhone exclusivity in the United States. Much of Softbank's success in luring customers also came from offering more data options for smartphones, tablets, laptops and vehicles. Similarly, Sprint has pushed its unlimited data plans in the United States, while Verizon and AT&T have moved to discontinue unlimited data plans.
Softbank has been a strategic buyer of telecom assets. The company entered the mobile service carrier business when it acquired Vodafone Japan from Vodafone (VOD) in 2006. Softbank also announced the acquisition of eAccess Ltd, a mobile WiFi router and LTE network services company, for about $1.84 billion deal, in October of 2012, which was expected to add about three million users to its Japanese business in the fourth quarter.
While it is not clear whether Softbank's spending limit for Clearwire is really a hard cap, it does appear that the business should end up doing well whether or not Dish's deal end up being considered. If Clearwire were sold to Dish, Sprint would benefit from the increased valuation of its slightly greater that 50% stake in Clearwire. If Sprint meets Dish's bid, claims that Sprint is undervaluing Clearwire will be less powerful since Sprint would be meeting the highest bid in the market.
Further, if Sprint and Dish can carve up Clearwire and its spectrum in a manner that meets the objectives of both companies, it may work out that such a deal has a greater chance of passing U.S. Federal Communications Commission ("FCC") and Department of Justice ("DOJ") scrutiny. Moreover, such a deal would likely leave Sprint in a better cash position.
Yet another possibility here is that Dish ends up further consolidating with Sprint and Softbank. If Dish is looking to get a wireless company, obtaining a sizable interest in Sprint and/or Softbank may be a better option than attempting to develop a new competitor from scratch. Here, by becoming a potential impediment to Sprint's objective, Dish may be able to broker itself a joint venture.
Last year, Sprint and Dish discussed the possibility of Sprint hosting Dish's wireless spectrum on Sprint's mobile towers, but the deal subsequently fell apart. Subsequently, last August, Dish made a failed attempt to acquire MetroPCS Communications (PCS) for about $4 billion. These deals indicate Dish is serious about acquiring a mobile data provider, and that Dish and Sprint are already familiar with each other. Because of this, a new offer will likely be made shortly.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.