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.
Topping Sprint Nextel Corporation (NYSE:S)’s offer by a full dollar a share is a huge gambit, because Sprint now has to go up even further if they want Clearwire. Moreover, the takeover deal between Sprint and Softbank seemed contingent on Sprint getting Clearwire, since Softbank was willing to include $8 billion in the buyout deal for Sprint to acquire the company. With DISH Network Corp (NASDAQ:DISH) in the game, it makes the merger more risky should Dish win the bidding war over Clearwire, which would make Sprint a less attractive buying option for Softbank’s investors.
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.