As if the acquisition saga involving DISH Network Corp. (NASDAQ:DISH), Clearwire Corporation (NASDAQ:CLWR), and Sprint Nextel Corporation (NYSE:S) was already not twisted, DISH upped its bid for Clearwire by $1 higher than Sprint’s revised bid, which was due to be voted on Friday. The sweetened offer from DISH represents a 20% plus premium to Sprint’s bid for the broadband wholesaler. The latest proposal has complicated the situation. Here is a closer look.
There is little doubt that a higher offer is good news for Clearwire shareholders, who are already sitting on more than 100% gains during the last six months. However, it needs to be seen if the broadband wholesaler accepts the higher offer or not. Clearwire Corporation (NASDAQ:CLWR)’s management had earlier advised shareholders to accept Sprint Nextel Corporation (NYSE:S)’s offer of $3.40 per share, but described the unsolicited offer from DISH Network Corp. (NASDAQ:DISH) as “more actionable.” The Special Committee of Clearwire’s board of directors is still neutral to the proposal from DISH, but has urged shareholders to defer making any determination with respect to the tender offer.
In the middle of the tussle, the value of broadband spectrum resources is clearly emerging as of paramount importance for all the parties involved. This also means that traditional valuation methods, which would describe Clearwire Corporation (NASDAQ:CLWR)’s debt equity ratio of 6.7 as highly avoidable, no longer apply to these companies. This can be argued that Clearwire’s shares are overvalued after the sharp run up in recent months. In any case, retail investors have the option of selling the shares at these lofty valuations which have exceeded expectations of even the strongest supporters of the company.
So what is DISH’s game plan?
It is interesting to note that DISH Network Corp. (NASDAQ:DISH) has a similar open offer to buy Sprint, which has preferred to get financing from its Japanese partner, SoftBank. DISH is building upon the dissatisfaction expressed by some Clearwire Corporation (NASDAQ:CLWR) shareholders over Sprint Nextel Corporation (NYSE:S)’s offer, claiming that the revised bid was still too low. However, even if DISH succeeds in turning these shareholders in its favor, the fact remains that Sprint already owns slightly over 50% of Clearwire. Sprint can, and in all likelihood would, block the competing bid if it gets through.
DISH Network Corp. (NASDAQ:DISH) has practically lost the chance to buy Sprint while the bid for Clearwire Corporation (NASDAQ:CLWR) is unlikely to go very far too. DISH’s obstructionist approach, thus, may just be an attempt to bring Sprint Nextel Corporation (NYSE:S) to the negotiating table. This way, DISH can forge a partnership with Sprint to use some of Clearwire’s spectrum when it launches its wireless services. The pay TV service provider has made no secret of its ambitions to get into the wireless market, but it needs a partner and spectrum to pull this task off. DISH currently trades at a high price earnings ratio of 36 and like Clearwire, it is also saddled with tons of debt.
What it means for Sprint
The ball is actually in Sprint Nextel Corporation (NYSE:S)’s court as it is now required to decide if it wants to further revise its offer for Clearwire Corporation (NASDAQ:CLWR). Doing so would ensure that the acquisition of the other half of Clearwire goes smoothly. However, it would result in a higher payout and if Sprint decides not to sweeten its offer, it may be required to strike a spectrum sharing arrangement with DISH Network Corp. (NASDAQ:DISH).
This approach has a number of advantages including restricting the initial cash outgo. DISH is stretched to its limit and does not look in a position to invest in wireless services and as such, Sprint’s tactic would defer spectrum sharing to a later date with a fair chance of such situation not arriving at all. When compared to DISH, Sprint Nextel Corporation (NYSE:S) is still in a much better shape. Although its debt equity ratio of 3.8 is not exactly healthy, it is better than a comparable figure of 41 for DISH Network Corp. (NASDAQ:DISH).
Foolish bottom line
Overall, DISH Network Corp. (NASDAQ:DISH) appears to be playing a high risk game to win some of the spectrum. This makes Clearwire Corporation (NASDAQ:CLWR) a natural beneficiary, but Sprint also stands to gain if it plays its cards carefully.
Jacob Wolinsky has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Plot Thickens as DISH Trumps Sprint originally appeared on Fool.com.
Jacob 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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