The Deal: Sprint Says Rival Clearwire Bid Violates Law

NEW YORK ( TheDeal) -- Sprint ( S) CEO Dan Hesse in a Monday letter attempted to disabuse Clearwire's ( CLWR) board and minority shareholders of the notion that an offer from Dish Network ( DISH) might actually succeed.

Charlie Ergen's satellite TV company has challenged Sprint's $3.40 per share offer for minority shares of Clearwire with a $4.40 per share bid of its own.

"Many Clearwire stockholders appear to be under the mistaken belief that Dish's proposal is a viable alternative to the Sprint merger agreement," Hesse wrote, "and this is simply not the case."

Hesse told Clearwire's board that a proposal from Dish violates Delaware law and conflicts with the agreement underpinning Sprint's investment in the wireless broadband provider. Hesse said that Dish's proposal is not standard and is not legal. The provision would also violate Sprint's investment agreement with Clearwire.

Among other terms, Dish would require Clearwire to grant it three board seats if it reaches a threshold of 25%. Delaware law allows two paths for mandating board seats, Hesse's letter said. A company can amend its certificate of incorporation or have a vote of a majority of shareholders.

Even if Hesse is correct, Ergen has succeeded in complicating the Clearwire purchase. He may also have gained traction in the bidding for Sprint, even if his ultimate goal may not be to buy the carrier, but rather to disrupt Softbank's attempt to acquire a 70% stake in Sprint, and persuade the telecoms to give Dish a favorable wireless services agreement.

Of course, Dish faces a more immediate impediment than Delaware law because Sprint owns a majority stake in Clearwire. As Dave Novosel of Gimme Credit Publications observed in a Monday note, "Sprint is not going away."

Crest Financial, which owns more than 8% of Clearwire's Class A shares and has a voting position of about 4%, reiterated its opposition to Sprint's offer to minority shareholders.

"We believe that Sprint's goal all along has been to lock up Clearwire on the cheap, while selling itself to Softbank, or another suitor, at a premium," Crest's general counsel, David Schumacher, said in a Monday statement.

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