Last week, Sprint Nextel Corporation (NYSE:S) sued both DISH Network Corp (NASDAQ:DISH) and Clearwire Corporation (NASDAQ:CLWR) after the latter’s board recommended Dish’s $4.40 per share proposal. Sprint has now raised its bid to $5 per share to top Dish’s proposal and end its war with the satellite provider. The sweetened bid has pleased the Clearwire board and also won the support of vocal critic investors who initially disapproved of the proposal, saying that it undervalued the Bellevue carrier’s spectrum asset.
Other than sweetening the bid, the Kansas carrier has also made Clearwire Corporation (NASDAQ:CLWR) agree to certain governance rules aimed to block rival bids for the regional telecom operator. The June 24 shareholders’ vote has been rescheduled for July 8. SoftBank’s investors were extremely pleased to learn that Clearwire finally seems happy with Sprint’s offer, and that the national carrier is in progress to acquire the most valued wireless airwaves.
Sprinting toward hope
Sprint Nextel Corporation (NYSE:S) said that some activist shareholders, who possess 9% of the Clearwire Corporation (NASDAQ:CLWR)’s voting shares, support the deal and have committed to vote in favor of the deal. This group includes Glenview Capital Management, Mount Kellett Capital Management, Chesapeake Partners Management, and Highside Capital Management (who had once teamed to block the consolidation proposal). Additionally, these hedge funds have promised to sell their stake to Sprint, even if the deal falls through. Also, if the deal fails, Clearwire will have to pay Sprint compensation of $115 million.
The improved offer brings Clearwire Corporation (NASDAQ:CLWR)’s enterprise value to $14 billion, which is 47% up from Sprint Nextel Corporation (NYSE:S)’s last proposal and 14% higher than Dish’s offer. Both DISH Network Corp (NASDAQ:DISH) and Sprint have been involved in a bidding war since January in an effort to get the ownership of Clearwire’s vast store of valuable 2.5 GHz spectrum, which is the primary base on which a wireless network is built.
Sprint knew that ownership of Clearwire Corporation (NASDAQ:CLWR) was crucial to SoftBank’s and Sprint Nextel Corporation (NYSE:S)’s future plan to build a tougher and stronger contender in a wireless market led by two prominent players, Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T). Sprint is the third-largest wireless national carrier, but is way behind the big two. Similarly, Clearwire’s support is crucial for DISH Network Corp (NASDAQ:DISH), which has been struggling to make a name in the telecom space. The satellite TV operator’s core-pay television business isn’t reaping enough profits, and its customer base is shrinking as well.
Now that both Sprint and Clearwire Corporation (NASDAQ:CLWR) are off the table, it is unclear what alternatives Dish will explore.
Dish’s next move
Sprint Nextel Corporation (NYSE:S) outpaced DISH Network Corp (NASDAQ:DISH)’s $4.40 per share bid just a couple of days after the latter decided to give up its hunt for the Kansas carrier. Dish’s Chairman, Charlie Ergen, is known for making some of the most unexpected negotiations in business. Ergen’s next step remains a mystery. The company amassed wireless spectrum, with the vision of diversifying into the wireless arena, as its satellite television business has slowed down. A combination with an existing national level player, such as Sprint, would help the company enter the telecom industry and effectively compete with industry leaders, Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T).
After giving up on its chase for Sprint, the company said that it would focus on the Clearwire deal, but that, too, has failed. By acquiring Clearwire’s 2.5GHz spectrum, the satellite TV provider proposed to offer HD movie content and bundled mobile services similar to what AT&T and Verizon already offer. The company plans to offer media content in addition to phone services, in collaboration with an existing telecom partner. So, finding a wireless partner is essential, as Dish doesn’t possess the required technical know-how to build a telecom wireless network.
Does Dish’s have a Plan B?
There are good chances that DISH Network Corp (NASDAQ:DISH) may initiate talks with T MOBILE US INC (NYSE:TMUS), which recently closed its merger deal with pay-as-you-go carrier, MetroPCS Communications Inc (NYSE:PCS). Even SoftBank had kept T-Mobile as its backup when Dish was making things very difficult for the Japanese telecom player. Ergen is said to have discussed matters with the fourth-largest U.S. carrier earlier this year.
My takeaway
Finally, Sprint Nextel Corporation (NYSE:S) seems to have all that it wanted: SoftBank’s financial backing and Clearwire’s prized spectrum asset. However, Sprint’s debt position, after it concludes its deal with Clearwire, remains a matter of concern. The national carrier already reported a debt of $16.7 billion on its balance sheet for the first quarter of the year. Clearwire Corporation (NASDAQ:CLWR)’s acquisition will further increase its debt.
Also, the carrier’s operating margin of 2.44% during the first quarter is much less than fellow players, Verizon and AT&T. However, the company’s huge expenditure to build a vast network and reduce costs could pay off in the future. 2014 is going to be an exciting year for Sprint and considerable changes are expected to be seen in its financials. I believe its current stock price of $6.96 is decent, as investors would stand to benefit from capital gains in the future. Dish Network, on the other hand, looks a little wobbly. The satellite provider could try its luck with T MOBILE US INC (NYSE:TMUS) to break into the wireless space.
Sprint is a decent play. I believe that with Masayoshi’s determination to rise to the top, the Kansas carrier is set to reform into a much tougher, challenging contender to effectively fight the virtual duopoly of the market leaders.
The article Sprint Raises Clearwire Bid, What’s Next for Dish? originally appeared on Fool.com and is written by Rajesh Marwah.
Rajesh Marwah has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Rajesh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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