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Analysis: Sprint should raise Clearwire bid to avoid Dish tension

Pedestrians walk past a Sprint store in New York in this December 17, 2012 file photo. REUTERS/Andrew Kelly/Files
Pedestrians walk past a Sprint store in New York in this December 17, 2012 file photo. REUTERS/Andrew Kelly/Files

By Sinead Carew and Liana B. Baker

NEW YORK (Reuters) - Sprint Nextel Corp should consider raising its offer price for Clearwire Corp or risk being saddled with a contentious relationship with Dish Network Corp, controlled by feisty billionaire Charlie Ergen.

Shareholders of Clearwire, already majority owned by Sprint, will vote on June 24 on Sprint's $3.40-a-share offer to buy the rest of the company. But Clearwire's board has recommended shareholders instead accept a higher, $4.40-a-share tender offer from Dish.

If Dish's offer carries the day, Sprint would have some kind of relationship with Dish, whether the satellite service provider becomes a minority Clearwire shareholder or the two agree to a network partnership. Either way, such an arrangement could be fraught with difficulty for Sprint, analysts say.

"It would be a cultural shock for any company to be partnered with Dish or to have any operating arrangement with it," said Brean Capital analyst Todd Mitchell, who pointed to a string of Dish relationships that went sour or ended in court.

Both Dish and Sprint, which has itself agreed to be bought by SoftBank Corp, want access to a trove of wireless airwave rights that Clearwire owns. SoftBank has also said that it is important for Sprint to acquire the Clearwire spectrum.

But several Clearwire shareholders have already said they are unhappy with Sprint's offer. Taran Asset Management principal Chris Gleason said he would not vote for Sprint's offer and that the vote would certainly fail on Monday.

Gleason, whose firm holds about 1 million Clearwire shares, suggested that Sprint had two options. "You've got to do a significantly higher bid or come to a deal with Charlie this week," Gleason said, referring to Ergen.

Analysts also expect Sprint to suffer a defeat at the shareholder meeting unless it raises its offer.

"Sprint and SoftBank should raise their offer for Clearwire to a level that's clearly superior to the Dish offer based on negotiations with major minority public shareholders," said Roe Equity Research analyst Kevin Roe.

Dish and Sprint declined to comment for the story.

'UNCOMFORTABLE SITUATION'

So far SoftBank has shrugged off concerns about having Ergen as a minority shareholder even as a person close to Sprint said having Ergen in Clearwire would make for "a very uncomfortable situation."

SoftBank has said it could be content with Sprint owning just 68 percent of Clearwire, which is a likely scenario if the vote fails on Monday and only strategic shareholders with 13 percent of Clearwire shares approve the deal.

But that would present problems for Sprint. For starters, it would miss out on "hundreds of millions of dollars" a year in potential savings as Clearwire would remain a separate company with its own board and a separate wireless network, according to Roe.

On top of that, Guggenheim analyst Shing Yin said that Ergen could throw all sorts of obstacles in Sprint's way if he ends up with a minority holding in Clearwire with a say on issues such as commercial spectrum leasing agreements with Sprint - also Clearwire's biggest customer.

"Dish has the potential to disrupt whatever plans SoftBank has for Sprint and Clearwire," Yin said.

If Sprint doesn't want to raise its bid, Roe suggested that it could try to forge an agreement with Dish to entice Ergen to end his quest for a minority stake in Clearwire.

A deal could include a sale of some Clearwire spectrum to Dish or entering a network sharing agreement where Dish can offer wireless services using Sprint's equipment and wireless airwaves that Dish owns, Roe said.

But even that arrangement may not sit well with Sprint. A person who used to work for Ergen said that nearly every large relationship the entrepreneur has had with a major company has ended up being dissolved.

Most recently, Dish paid $700 million in cash last fall to settle a breach of contract lawsuit with Cablevision Systems Corp over a failed joint venture called Voom. Cablevision alleged that Ergen stopped paying for HD channels Dish had agreed to carry for 15 years, before the end of the agreement.

Last year, Ergen also provoked a lawsuit from all the major U.S. broadcasters because of a Dish video recorder called the Hopper, which lets TV subscribers automatically skip recorded ads. The Hopper could threaten revenue at the broadcasters, with whom Dish has multibillion dollar programming deals.

Dish battled with SoftBank to buy Sprint itself but said late on Tuesday that it would instead turn all its attention and resources to efforts to buy a minority stake in Clearwire, as it was unhappy with the Sprint process.

In the meantime Sprint is hoping for legal help. It sued Dish and Clearwire earlier this week to try to block Dish's tender offer. But Guggenheim's Yin worried that Sprint would be left in limbo during a prolonged legal case.

"If Sprint and SoftBank want Clearwire, they're going to have to do more than filing this lawsuit," Yin said. Waiting for a legal win could delay Sprint's turnaround, which is dependent on a network upgrade that involves Clearwire spectrum, Yin said, adding that SoftBank likely wants a resolution soon.

(Reporting by Sinead Carew and Liana B. Baker; Additional reporting by Nicola Leske; Editing by Tim Dobbyn)

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