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  (Source: Adrian Mendoza)
DISH's higher bid is on the verge of collapse due to its onerous terms

Sprint Nextel Corp. (S) is perhaps the most intriguing force in the U.S. telecommunications market.  While it's currently performing miserably, bleeding customers and revenue, it's also in a process of evolution that could make it a leaner, more competitive power.

Key to that process is Sprint's gamble to fully acquire Clearwire Corp. (CLWR) a telecommunications company that Sprint currently owns a 50 percent stake in.  Clearwire holds a large amount of scarce spectrum, and what's more much of the spectrum is in the same LTE band used by Softbank Corp. (TYO:9984) in Japan.

Softbank is in the processing of acquiring a majority (70 percent) stake in Sprint.  With the new deal Softbank could save money by essentially sharing top smartphones between the American and Japanese markets, in theory.

There is a risk, though, as Sprint offered a relatively low buyout price of $2.97 USD/share -- or a total of $2.2B USD.  Shareholders refused to vote on the deal and were reportedly unhappy with it.  Also on the table is a rival offer from DISH Network Corp. (DISH) at $3.30 USD/share.  However, the DISH deal appears on the verge of collapse given that it was loaded with debt/equity swap conditions and commercial agreements, which seemed onerous.

Clearwire
Sprint is closing on an acquisition of Clearwire. [Image Source: TNW]

In a sign Sprint may be on the verge of winning, Clearwire offered preliminary approval for accepting a loan of $80M USD from Sprint.  That loan is a convertible debt obligation.  If the shareholders vote to block the sale to Sprint, the debt is converted to  shares.  

The $80M USD in financing would be enough to dilute current shareholders' stake by 3.5 percent.  Clearwire declined to accept $160M USD in funding in January and February, as it was still considering DISH's proposal.

Many view its acceptance of the March payment as a sign that DISH's bid is officially sunk.  BTIG LLC analyst Walter Piecyk told Reuters that it is unlikely that DISH Chairman Charlie Ergens would be willing to back down from the extra conditions to save his company's bid.  Wells Fargo & Comp. (WFC) analyst Jennifer Fritzsche argues that at this point DISH's best hope of saving the bid is to "pursue litigation" -- perhaps sue Sprint and the shareholders -- as its price is signficantly higher than Sprint's.

DISH network
DISH is trying to compete with Sprint to buy Clearwire. [Image Source: Wikimedia Commons]

Sprint's road would have been much easier, were it not for its own debt struggles, prior to the Softbank hookup.  Those struggles forced it to initially cut its stake in Clearwire to prevent a debt trigger from being reached.

But inaction plays to Sprint's advantage.  If the DISH deal is sunk, Clearwire's rising debt will likely necessitate it to take on more of Sprint's convertible loans, which in turn may give Sprint enough of a stake to break the fragile coalition of shareholders opposing the deal.

Softbank's plan to reform Sprint will also rely heavily on prepaid phone customers under the Sprint, Boost Mobile, and Virgin Mobile brands.  Prepaid is one of the only sectors to grow at Sprint; an LTE boost from Clearwire could further enrich the prepaid options.

Source: Reuters



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