12.13.12

It’s complicated…

Posted in DISH, Financials, Operators, Regulatory, Spectrum at 1:31 pm by timfarrar

Today Sprint made an SEC filing stating that it had offered to buy the remaining shares in Clearwire for $2.90 per share, far below the $5+ that some think Sprint will have to pay to buy out the hedge funds that have invested in Clearwire with an expectation that the company’s spectrum is hugely valuable. Of course, as many have noted, Clearwire’s spectrum is seen as very desirable by Softbank, and could enable Sprint to rollout a much higher capacity urban LTE network, given the huge amounts of spectrum that Clearwire holds.

However, the underlying story here is far more complicated: why has Sprint made such a low offer, and why now? After all, even if the remaining strategic investors (Comcast, Intel and Bright House) are willing to take the $2.90 and run, they wouldn’t be able to command the majority of non-Sprint-affiliated holders of Clearwire’s equity needed to approve the deal. It appears that one (possibly the key) motivation is that if the strategic investors do accept Sprint’s offer then this would potentially block any alternative deals by Clearwire for several months (until the Softbank deal closes), as according to Sprint’s filing:

“Under the terms of the Sprint Proposal, each of Comcast, the BHN Entities and the Intel Entities would enter into a voting and support agreement with Clearwire with respect to the Proposed Transaction, which will provide that such Equityholders will vote (i) all voting shares of Clearwire owned by such Equityholders in favor of adopting the definitive merger agreement and approving the transactions contemplated thereby and (ii) against other acquisition proposals. These voting obligations would apply whether or not the Proposed Transaction is recommended by the Board of Directors of Clearwire. The voting and support agreement would also provide that such Equityholders would provide any waivers and consents needed to effectuate the Proposed Transaction.”

It’s surely not a coincidence that this offer came on the same day that Charlie Ergen received approval from the FCC for terrestrial use of his AWS-4 spectrum, with DISH stating that it “will consider its strategic options and the optimal approach to put this spectrum to use for the benefit of consumers”. After all DISH appears to have had a potential deal with Clearwire on the table for several months, held up only by delays in the FCC’s approval (which were largely caused by Sprint’s intervention via efforts to gain access to the H-block), and has bought $750M of Clearwire’s debt. The existence of other offers also seems to be confirmed, at least obliquely, by Clearwire’s indication that the Special Committee of the Clearwire Board of Directors, was “previously formed to review potential indications or proposals, including from Sprint”. However, DISH’s offer to buy some of Clearwire’s network and spectrum assets may not provide much if any near term value for the equity investors, perhaps making the strategic investors think that Sprint’s “bird in the hand” will be a better bet.

So what is Ergen up to? Rumors have persisted that Carlos Slim is allied with Ergen and that he has also been looking closely at Clearwire in recent weeks, while I’m told that today Sound Point has suddenly started moving aggressively to buy up more of LightSquared’s debt. Could Ergen and Slim be trying to acquire spectrum across multiple bands, by purchasing assets from Clearwire and positioning themselves to use some of LightSquared’s spectrum after a resolution (in the distant future) off GPS interference issues?

I’ve wondered recently whether Ergen has little choice other than to sell DISH’s spectrum to AT&T because there are few alternative partners available. However, it seems that Ergen may not yet have given up on a deal with Clearwire, making Sprint ever more desperate to block it. If Sprint is now able to tie up Clearwire for several months, then that would probably delay any deal beyond Ergen’s window for making a decision about how to proceed. Sprint has also been spreading rumors of its own potential deal with Ergen as a way to pressure Clearwire’s strategic investors to accept the offer from Sprint: the story was reported by Bloomberg last Friday, but first emerged somewhat earlier, just when Sprint delayed its proxy filing so as to negotiate with Clearwire.

UPDATE (12/14): Reuters is now reporting that Clearwire “is also in talks about other strategic alternatives besides the Sprint offer”, apparently confirming that an alternative deal is on the table. Its hard to see what that could be other than an offer from DISH. Reuters also notes that Softbank is capping Sprint’s offer at $2.97 per share, the same as paid for Eagle River’s stake, which indicates that Softbank is certainly not willing to pay whatever it takes to buy Clearwire at this point in time.

Some have asked me what is Sprint and Softbank’s alternative to buying Clearwire. My view is that Sprint will save its money for buying PCS spectrum, where its need is far more urgent. In particular, Sprint is going to have to pay $1B+ to buy the 10MHz H block in the auction next year, and if DISH is left with no alternative other than to sell out to AT&T, Sprint would expect to pick up another 10-20MHz of PCS spectrum that AT&T would need to sell in order to get a DISH deal approved by the FCC. What is key to understanding this strategy is that Sprint wins simply by blocking DISH, regardless of what happens to Clearwire, because if DISH has no alternative other than to sell the AWS-4 block to AT&T, Sprint will be able to buy PCS spectrum from AT&T.

If Clearwire’s strategic investors don’t take Sprint’s bait then would DISH be able to pull off a deal with Clearwire? Even then would Ergen follow through and build a wireless network? My guess is that the answer very much depends on how much AT&T is prepared to pay for the AWS-4 spectrum, but its certainly not yet time to take it for granted that Sprint will end up acquiring Clearwire in the next few months.

6 Comments »

  1. Sprint, Clearwire, Softbank, Dish: Who’s playing whom? — Tech News and Analysis said,

    December 14, 2012 at 1:01 pm

    [...] can read Farrar’s full analysis for yourself on his blog, but what it boils down to is this: Sprint wants to block any deal between Dish and Clearwire to [...]

  2. Sprint, Clearwire, Softbank, Dish: Who’s playing whom? ← techtings said,

    December 14, 2012 at 1:20 pm

    [...] can read Farrar’s full analysis for yourself on his blog, but what it boils down to is this: Sprint wants to block any deal between Dish and Clearwire to [...]

  3. Global Tech Review | Sprint, Clearwire, Softbank, Dish: Who’s playing whom? said,

    December 14, 2012 at 10:05 pm

    [...] can read Farrar’s full analysis for yourself on his blog, but what it boils down to is this: Sprint wants to block any deal between Dish and Clearwire to [...]

  4. Sprint, Clearwire, Softbank, Dish: Who’s playing whom? | TechDiem.com said,

    December 15, 2012 at 1:14 am

    [...] can read Farrar’s full analysis for yourself on his blog, but what it boils down to is this: Sprint wants to block any deal between Dish and Clearwire to [...]

  5. Sprint sets migration path for Clearwire network, spectrum » India Telecom Tracker said,

    December 17, 2012 at 10:13 pm

    [...] article – see this GigaOM article – see this LightReadingMobile article – see this TMF Associates blog post – see this BTIG blog [...]

  6. TMF Associates MSS blog » Who wants what? said,

    January 10, 2013 at 4:49 pm

    [...] last year about how he looks at “business relationships”, and Sprint’s attempts to talk up a deal with Dish (rather than vice [...]

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