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No Quick Trial For Sprint-Clearwire Merger Challenge

A Clearwire Corp. investor lost a bid to put the brakes on majority shareholder Sprint Nextel Corp.'s $2.2 billion buyout bid Thursday, when a Delaware judge rejected its motion for an expedited trial, noting the central issue was price, not process.

Crest Financial Ltd. had hoped to start a trial in mid-April, four to five months after it filed an initial complaint in Delaware Chancery Court. Chancellor Leo Strine Jr. denied the motion, saying Sprint has deep enough pockets to satisfy any future judgment stemming from its $2.2 billion offer for the broadband provider. And those pockets are likely to get deeper soon, courtesy of Sprint's pending $20 billion acquisition by Japanese telecom giant SoftBank Corp.

"The ultimate remedy has got to be that you're harmed. Your clients are perfectly happy to take cash," Chancellor Strine told lawyers representing Crest. "What your clients are concerned about is the correct amount of cash."

"I'm not saying there aren't very interesting potential litigable issues, but I'm saying that the potential litigable issues I see today are ... more appropriately litigated in a damages action," he added.

A Crest spokesman said on Friday that the hedge fund plans to take that path, calling Sprint's bid "a grossly inadequate and coercive offer."

The ruling is a win for Sprint, which is trying to acquire the 49.5 percent of Clearwire it doesn't already own. It is, to a lesser degree, a setback for Dish Network Corp., which swooped in Tuesday with a topping offer but has so far stayed out of the lawsuit.

And it reinforces what has become clear in recent days: With Sprint unwilling to sell, Dish's bid is a long shot.

"The special committee is duty-bound to do what it can," Chancellor Strine said. "But the reality is, until Sprint is convinced to become a seller ... nobody else can get the company."

Clearwire said its independent board committee will engage in talks with Dish about the satellite-TV operator's $3.30-a-share bid, but has noted that it will be "significantly limited" by its pre-existing deal with Sprint. Clearwire's board cannot unilaterally terminate the Sprint agreement, and Sprint has said it will block the sale of any of Clearwire's spectrum.

Crest, which owns about 8.3 percent of Clearwire's Class A shares, claims the board breached its fiduciary duties by allowing Sprint to extract the full value of Clearwire's spectrum to the detriment of minority shareholders.

It has honed in on a transaction between Clearwire's management and Sprint in the weeks leading up to the merger announcement. Eagle River Investments LLC, a firm owned by Clearwire founder Craig McCaw, agreed on Oct.13 to sell its stake in the company to Sprint for $100 million, boosting Sprint's stake from 48.1 percent to a controlling 50.4 percent.

It also claims a financing condition by which Sprint would buy Clearwire debt it can later convert into discounted shares forces minority shareholders to support the transaction by increasing Sprint's ownership to the point where "no" votes would be futile.

Collins Seitz Jr. of Seitz Ross Aronstam & Moritz LLP, which represents Crest, called the financing "hugely coercive" and said "other minority stockholders that [Crest will] be soliciting are going to say, 'Screw it. You've already shifted all the money over to their side of the table.'"

Crest is joined in its opposition — but not in the Delaware court case — by Mount Kellett Capital Management LP, another Clearwire investor. Together, the two hedge funds are a smaller counterweight to Intel Corp., Comcast Corp. and Bright House Networks LLC, which own about 13 percent of Clearwire's stock and have thrown their weight behind Sprint deal.

There are no signs yet that Dish will join the litigation, as its proposal doesn't hinge on the court's invalidation of any provision of the Sprint-Clearwire merger agreement. Robert Saunders, the Skadden Arps Slate Meagher & Flom LLP partner representing Sprint, said during Thursday's conference that he had no indications Dish would jump into the ring.

But Chancellor Strine encouraged the interloper to join an already-crowded docket, which includes nine law firms for its three main parties.

"I think if Dish wants to be real, Dish also needs to come to the table itself," he said.

Crest is represented by Collins Seitz Jr., David Ross and Garrett Moritz of Seitz Ross Aronstam & Moritz LLP and Viet Dinh of Bancroft PLLC.

Sprint is represented by Robert Saunders and Ronald Brown of Skadden Arps Slate Meagher & Flom LLP.

Eagle River is represented by Kenneth Nachbar of Morris Nichols Arsht & Tunnell LLP and by Friedman Kaplan Seiler & Adelman LLP.

Clearwire is represented by Martin Lessner of Young Conaway Stargatt & Taylor LLP and Matthew Solum of Kirkland & Ellis LLP. The company's independent committee is represented by Rudolf Koch of Richards Layton & Finger PA and Joe McLaughlin of Simpson Thacher & Bartlett LLP.

The case is Crest Financial Ltd. v. Sprint Nextel Corp. et al., case number 8099, in the Delaware Court of Chancery.