Why Is Sprint Suing Dish?

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Sprint Nextel Corp. (NYSE:S) is suing Dish Network (NASDAQ:DISH) to block Dish’s rival bid for Clearwire (NASDAQ:CLWR). Sprint claims that Dish’s offer breaks Delaware law and Sprint’s investor agreements.

Sprint and Dish have been battling to acquire Clearwire to take advantage of its wireless spectrum holdings. Sprint, which already owns over half the company, wants to use Clearwire’s wireless spectrum to help it compete with Verizon Wireless (NYSE:VZ) and AT&T (NYSE:T). Sprint is currently the number three wireless provider in the country, and it has been exploring various options to expand its network. Dish has been looking to break into the wireless phone market as a way to diversify outside just satellite TV.

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Sprint increased its offer for Clearwire to $3.40 a share last month, and Dish made a counteroffer of $4.40. Sprint decided to sue after Clearwire’s board came out in support of Dish’s offer. The suit claims that Dish’s offer would require the company obtain at least a quarter of Clearwire’s shares, and would allow Dish to appoint three members of Clearwire’s board, moves that violate Delaware’s corporate law, according to Sprint. The lawsuit claims Dish is trying to “fool” and “coerce” Clearwater shareholders into accepting an offer from Dish, “an entity which has everything to gain from a failure of Clearwire.”

Dish recently attempted to purchase Sprint itself, making a $25.5 billion offer for the wireless provider in an attempt to undercut a rival offer from Japan’s SoftBank. SoftBank increased its offer from $20.1 billion to $21.6 billion after Dish announced its bid and Dish’s Chief Executive Officer Charlie Ergen launched a campaign claiming that a deal between SoftBank and Sprint would compromise national security. Sprint has chosen to accept SoftBank’s sweetened offer in the hopes that the Japanese wireless giant will have the cash and the muscle to ramp up Sprint’s network.

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After receiving SoftBank’s sweetened deal, Sprint gave Dish until June 18 to make its best and final offer. It appears Dish has given up on the battle to purchase Sprint and is instead focusing its resources on acquiring Clearwire. Ergen is notoriously unpredictable and fond of making fierce takeovers, so it remains to be seen how Dish will respond to the suit.

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