Back in October, I reported on a potentially lucrative deal between Sprint Nextel Corporation (NYSE:S), Softbank, and Clearwire Corporation (NASDAQ:CLWR) that would lead to the Japanese-owned Softbank to buy Sprint for $20.1 billion, recently approved by the U.S. Committee on Foreign Investment, while investing money for Sprint to buy wireless-network company Clearwire to boost coverage and wireless networks.
It seemed like a done deal at the time, and it would’ve increased Sprint Nextel Corporation (NYSE:S)’s footprint in the United States, absorbed Clearwire to create a network that could rival Verizon and AT&T, and increased Japanese investment in the U.S. telecom market. Since then, though, DISH Network Corp (NASDAQ:DISH) decided to jump in with a new offer for Clearwire. All of a sudden, a sure deal has turned into chaos for shareholders and the companies.
The move by Dish, spearheaded by CEO Charlie Ergen, includes an offer of $4.40 per share for Clearwire, a full 29% more than Sprint’s offer, equaling a valuation of Clearwire Corporation (NASDAQ:CLWR) of $6.5 billion. Sprint Nextel Corporation (NYSE:S)’s offer was for $3.40/share, which was an increase due to investors’ concerns that Sprint was low-balling the value. These concerns proved to be correct, as Sprint and Softbank, the main partner in the Clearwire buy, were accused of leaving the door open for other buyers seeing an opportunity. Enter Mr. Ergen, rather late in the game, seeking to expand DISH Network Corp (NASDAQ:DISH)’s presence in wireless services.
Mr. Ergen’s bold move has definitely had an impact in this battle, and it’s not just a quest to make Sprint Nextel Corporation (NYSE:S)’s life difficult it seems. DISH Network Corp (NASDAQ:DISH) is more equipped to buy Clearwire Corporation (NASDAQ:CLWR), with a total revenue of $14.27 billion according to the last annual report, with net income of $636.69 million. Given that Dish has offered Clearwire $80 million per month to keep the company going as part of the deal, it represents a safe investment for DISH Network Corp (NASDAQ:DISH) that could yield big profits, as well as an expanded wireless network that will attract customers. With the customers is sure to some a boost in share prices and investment.
Sprint Nextel Corporation (NYSE:S) meanwhile, needs Softbank desperately. Yearly income from 2012 was in the red by $4.33 billion dollars, thanks to increases in long term debt, operating expenses, and a weaker cash flow. It seems as though the offer Dish made of $4.40/share was made knowing that Softbank would have to come to Sprint’s aid in pushing the deal higher, in the hopes of acquiring Clearwire, and saving the merger. Clearwire is already 51% owned by Sprint, and the deal would be for the rest of the company, which is DISH Network Corp (NASDAQ:DISH)’s aim as well. The boost to the wireless network would benefit both companies’ futures tremendously, but Sprint has the most to lose if they can’t swallow Clearwire whole.
Regardless of who grabs the rest of Clearwire, Clearwire appears to be in position to win regardless of what happens. Clearwire Corporation (NASDAQ:CLWR) needs money, badly, to the tune of $1.7 billion to keep going. Long term debt jumped to $4.27 billion from $4.02 billion the year before, and net income went $11 million deeper in the red to $728.6 million. However, Dish’s inclusion into the bidding wars should shore up investor confidence in Clearwire because it demonstrates that regardless of the company’s poor balance sheet, the firm has a valuable service that will benefit either company in the long run.
Now, some analysts believe Clearwire’s real valuation should be closer to $5/share, which is what higher-ups in the company want. DISH Network Corp (NASDAQ:DISH) has come the closest to meeting that target, and Sprint Nextel Corporation (NYSE:S) may have to come even closer to stay in the game. Either way, Clearwire appears to be able to get what they want from either Sprint or Dish, and that has to be good news for the company that needs money, soon.
Clearwire, for me, appears to be the better investment opportunity at this point. Adding a new suitor can only make the share-holders happy that the company has a future, and that it is worth as much as the owners believe it to be worth. As for DISH Network Corp (NASDAQ:DISH) and Sprint, it will be fun to watch these two go at it as this war unfolds, although Dish’s late entry has upped the ante significantly and puts Sprint in a difficult position going forward. Softbank’s partnership with Sprint will be tested because of this, and while that’s happening, Dish’s offer looks all the better.
Charlie Ergen has caused the chaos he wanted, and all of a sudden, a sure thing has become an interesting story once again.
John McKenna has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. John is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Charlie Ergen’s War originally appeared on Fool.com and is written by John McKenna.
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