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.

Ergen has lodged a bid for Sprint itself although his ultimate goal may be to press Sprint and Softbank into a wireless services agreement, rather than to buy the telecom outright.

There were conflicting proxy recommendations on May 31 regarding Softbank's bid for Sprint.

Institutional Shareholder Services suggested that Sprint shareholders should accept Softbank's offer.

ISS assigned Softbank's cash-and-stock bid a valuation of $6.45 per share, which it noted is a 28% premium to the stock price before rumors of a deal surfaced. It also exceeds the multiple of 5.2 times Ebitda that T-Mobile USA paid for MetroPCS ( PCS) and a median price target of $5.50 per share of analysts that ISS surveyed.

The firm said it did not consider Dish's bid in its analysis, however, because it had not made a direct tender.

Egan-Jones Ratings reached the opposite conclusion.

Citing a "strong potential for an improved offer for the company from Softbank," Egan-Jones said, "it would be unwise at this time for the company's shareholders to approve the merger agreement with Softbank in its current form."

The Sprint-Clearwire-Softbank-Dish conflict should come to a head in less than two weeks.

Sprint shareholders will vote June 12 on Softbank's buyout offer, and Clearwire's vote will follow on June 13.

"At the end of the day, we think Charlie ends up getting a network host and some spectrum," Wells Fargo Securities analysts Jennifer Fritzsche, Marci Ryvicker and Andrew Spinola stated in a Monday report.

"If you were Sprint and Softbank, wouldn't you rather have Charlie and his spectrum on your side, rather than compete against him?" they asked. "The answer is probably yes."

Written by Chris Nolter in New York

More from Mergers and Acquisitions

10 Questions for PayPal Ahead of Its Big Investor Day

10 Questions for PayPal Ahead of Its Big Investor Day

Congress May Have Just Set in Motion a Huge Banking Industry Merger Wave

Congress May Have Just Set in Motion a Huge Banking Industry Merger Wave

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Square Shares Shake Off Concerns About PayPal's Deal for iZettle

Square Shares Shake Off Concerns About PayPal's Deal for iZettle