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Approval sets the stage for a fight over ClearWire

DISH Network Corp. (DISH) founder and CEO Charlie Ergen hates losing.  But it appears that he has lost in his acquisition bid for Sprint Nextel Corp. (S), with approximately 80 percent of shareholders (with 98 percent voting) approving of a rival bid from Japanese carrier Softbank Corp. (TYO:9984).

I. SoftBank Wins

The SoftBank bid on the surface looked slightly less favorable, offering a bit less cash, less stock, and a lower final ownership stake.  

But shareholders -- and Sprint's management -- took issue with the fine print that Mr. Ergen tends to load his bids with, and felt SoftBank's deep experience as a successful mobile operator made it a better fit (versus DISH who could offer service bundling opportunities).  Further, Sprint shareholders and management voiced skepticism about DISH's ability to raise the amount of cash it promised for the bid.

Charlie Ergen v. Masayoshi Son
Charlie Ergen (Dish/Echostar) and Masayoshi Son (Softbank) both serve as joint chairman and CEOs of their firms.  Both have a penchant for driving a hard deal.  And both hate to lose.
[Image Source: Sawyer Speaks (left); Bloomberg (right)]

Under the SoftBank deal, shareholders will get $16.64B USD in cash, or roughly $7.65 USD per share.  The share pool will then swell, so that SoftBank owns 78 percent of Sprint and existing shares constitute 22 percent of the pool.  The deal should wrap up by July, though it could be extended, if necessary.

Sprint sign
The acquisition must now past U.S. regulatory approval. [Image Source: Lisa Poole/AP]

The deal will next need to score regulatory approvals from the U.S. Federal Communications Commission (FCC) and U.S. Department of Justice (DOJ) (the latter of which gives a silent blessing by declining to sue to block major mergers).

II. Will Ergen Looks to Drive Clearwire Into Bankruptcy to Punish Sprint?

The big question is how Mr. Ergen will take this news, and whether he'll try to punish Sprint for its rejection.

At stake is Sprint's partially-owned subsidiary Clearwire Corp. (CLWR).  Currently Sprint controls about 50 percent of shares in the wireless broadband company, while minority shareholders hold the rest.

Mr. Ergen has hoisted an attractive proposal for those minority shares, which is much sweeter than a bid by Sprint's, who is bidding to fully own Clearwire.  Clearwire's board has endorsed the proposal, which will soon be put to a vote among minority shareholders.

But Sprint is suing to block that acquisition, saying it violates the company's governing documents, which require Sprint to approve of such deals.  Sprint contends that it has a strong interest in the success of Clearwire, having poured billions in investments into it.  It accuses Mr. Ergen of offering an acquisition contract that triggers debt-based cash payouts that could let him turn a profit if Clearwire goes bankrupt.

Under Mr. Ergen's offer, he could gain if Clearwire goes bankrupt. [Image Source: TNW]

Thus the worst-case scenario (according to Sprint) is for Mr. Ergen to win his bid (and against Sprint's challenge), and then opt to drive Clearwire into bankruptcy, scoring both sweet retribution against the carrier who scorned him, plus cash.  Such a scenario could constrain the finances of SoftBank, which would further benefit Mr. Ergen if he carries through on rumored plans to launch a fifth major U.S. carrier leveraging his hoarded stockpile of spectrum.

Dan Hesse
Sprint CEO Dan Hesse loves the SoftBank acquisition. [Image Source: Ellis Hamburger]

Still Sprint took an optimistic tone in its press release on the acquisition vote, with CEO Dan Hesse (who owns almost 1 percent of the company) remarks, "Today is a historic day for our company, and I want to thank our shareholders for approving this transformative merger agreement.  The transaction with SoftBank should enhance Sprint’s long-term value and competitive position by creating a company with greater financial flexibility."

Source: Sprint

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RE: finally!
By BRB29 on 6/28/2013 11:50:49 AM , Rating: 2
You can be in any sprint club you want. You can have as many minutes as you want. You can have as much data as you want. It all means nothing if it is unreliable. Hence why I would rather pay more even though it looks like I got less on paper. In reality, my calls always go through and I have coverage everywhere I go. 4G is available everywhere in every city and it is fast.

How are you going to criticize me and the millions of sprint customers that fled to verizon? we all did it for the same reason. Horrible phone service and the worst customer service of any phone company....or any company.

The only thing attractive with Spring is their price.

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