The telecommunication industry is going through a major consolidation. DISH Network Corp (NASDAQ:DISH) and Japanese’s Softbank Corp (USA) (OTCMKTS:SFTBF) are both trying to acquire Sprint Nextel Corporation (NYSE:S). Dish is in the process of finalizing its offer, but the board of Sprint has already invited shareholders to vote for the Softbank bid on June 12.
To complicate matters more, Dish is also competing with Sprint to acquire Clearwire Corporation (NASDAQ:CLWR). Sprint is a majority owner in Clearwire and is openly fighting Dish for control. There is confusion around the legality of Dish’s offer for Clearwire. A shareholder vote for Clearwire’s acquisition by Sprint is due on June 13. Investors should consider Clearwire and Dish as attractive options for a stake in U.S. telecom industry.
Sprint’s acquisition
DISH Network Corp (NASDAQ:DISH) and Softbank have both made bids for the telecom giant Sprint. The Japanese company has offered to buy a 70% stake in Sprint for a whopping $20.1 billion. Dish has countered the offer with a $25.5 billion bid to buy out the third largest telecom provider in the United States. While the Softbank Corp (USA) (OTCMKTS:SFTBF) bid is inferior in terms of payout, the Japanese banking giant argues that the Dish deal will bury the company in debt, and that as a result it will not be able to invest in Sprint’s network expansion.
Sprint’s shareholders will vote for the Softbank Corp (USA) (OTCMKTS:SFTBF) offer on June 12, which is this coming Wednesday. There is pressure on the board to halt the vote and give Dish time to come up with a binding offer. Proxy advisory firms have a mixed opinion on the deal. Institutional Shareholders Services (ISS), the most prestigious proxy advisory firm in the country, has advised shareholders to go for the Softbank deal. On the other hand, Glass Lewis has advised against taking any deal before reviewing Dish’s offer. ISS has also acknowledged that their recommendation does not include an assessment of DISH Network Corp (NASDAQ:DISH)’s offer.
4G LTE pie
Dish is trying to acquire both Sprint and Clearwire, the later more diligently. Sprint is also interested in controlling Clearwire and had made a $3.40 per share offer to acquire the company. Sprint offered $2.97 per share in December, but the company had to increase the offer under pressure from shareholders. DISH Network Corp (NASDAQ:DISH) has made a $4.40 per share competing offer, which is almost 30% higher.
Clearwire has emerged as an integral piece for both companies trying to enter the 4G era. This is because Clearwire has one of the most advanced 4G networks in the country which it operates under the Clear brand name. It builds and manages high speed mobile Internet and residential Internet access services. In order to remain relevant in the U.S. industry, operators like Sprint have to upgrade to 4G service and the easiest way for Sprint to upgrade is to acquire Clearwire.
Clearwire shareholders will vote on the Sprint offer on June 13, this coming Thursday. In order to be successful Sprint will need to garner more than 50% of the minority shares’ votes. There is active criticism of Sprint’s conduct of the matter. An activist group led by investment firm Mount Kellett claims to have 18.2% of the minority shareholders’ vote. According to these shareholders, the Dish deal is not only superior but also actionable. Crest Financials has also shown their displeasure with Sprint and has demanded that Clearwire should seriously consider Dish’s offer. Crest is an 8% shareholder of Sprint and is engaged in a proxy battle with Sprint.
Bottom line
The impending shareholder vote will decide the fate of Clearwire and Sprint. If Sprint fails to win its Clearwire vote, the share prices of Dish and Clearwire will appreciate. The acquisition of Clearwire will make DISH Network Corp (NASDAQ:DISH) a serious contender in the U.S. telecom industry and considerably improve its valuation.
The shareholders of both Clearwire and Sprint should consider the Dish offer. DISH Network Corp (NASDAQ:DISH) is paying a substantial premium to both Softbank’s and Sprint’s offers. The Sprint deal has a higher chance of going through in this vote, I believe the investors of Clearwire will vote against the Sprint deal.
Clearwire is trading at a 3% discount to Dish’s offer and a 20% premium to Sprint’s takeover bid. While the company is an excellent long term bet in the U.S. telecom industry, potential investors should wait until after the June 13th vote before investing. Dish share price has appreciated 40% in the last one year, and any positive news on either acquisition deals will result in more appreciation. These recent developments make DISH Network Corp (NASDAQ:DISH) and Clearwire excellent long-term investments.
Mohsin Saeed has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Two Stocks to Buy on M&A originally appeared on Fool.com.
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