UPDATE 4-Clearwire to tap Sprint money but continue Dish talks
* Says will draw on $80 million in financing from Sprint
* Company says no longer obliged to speed up network upgrade
* Shares fall but still top Sprint offer price
By Sinead Carew
Feb 27 (Reuters) - Wireless service provider Clearwire Corp said on Wednesday it would draw on $80 million in financing from Sprint Nextel Corp, which is seeking to buy it, but vowed to continue talks with rival bidder Dish Network Corp.
Shares of Clearwire fell 3 cents to $3.17 after the decision, which could end Dish Chairman Charlie Ergen's effort to buy Clearwire. But the stock was still above Sprint's offer of $2.97 per share, showing that investors still held out hope for a higher valuation.
Analysts said Clearwire was likely trying to force Dish to firm up its proposal. Its decision appeared to contradict a previous assertion that it could not take financing from Sprint as long as it was considering a $3.30-per-share offer from Dish due to conditions set by the satellite TV provider.
Dish declined to comment, while Sprint said it was pleased with Clearwire's decision.
Sprint, already the majority owner of Clearwire, struck a deal in December to buy out the rest of the company. But many Clearwire shareholders said they were unhappy with the Sprint offer, which would need approval from the majority of Clearwire's minority investors.
While some analysts have questioned the seriousness of Dish's bid, BTIG analyst Walter Piecyk said it would not be a stretch to think that Ergen would modify his proposal to take away the condition after two months of talks with Clearwire.
"We suspect that Ergen is not done with the Clearwire process quite yet," Piecyk said.
Chris Gleason, a managing partner at Clearwire shareholder Taran Asset Management, said that Dish's reaction to Clearwire's decision will show whether Ergen really wants to do a deal.
"This pushes Charlie along," said Gleason.
Another analyst, Jennifer Fritzsche of Wells Fargo, said Dish could "pursue litigation," given that its bid of $3.30 per share is higher than Sprint's offer.
Even if Clearwire ultimately rejects Dish, it is not certain that investors will approve the Sprint bid, Piecyk said.
Investors holding 29 percent of Clearwire's minority shares had told Reuters in January that they were not happy with Sprint's bid. Clearwire has yet to set the date for a shareholder meeting to vote on the deal.
As part of their December agreement, Sprint offered Clearwire $800 million in financing that it could draw on in installments of $80 million over 10 months.
The financing is in the form of debt that will be convertible to Clearwire shares in the event that its shareholders vote against Sprint's offer. So every installment that Clearwire accepts would further weaken its minority shareholders' clout in the future.
If Sprint were to convert the $80 million March note into equity, this would dilute the ownership of today's investors by 3.5 percent, according to Piecyk.
Clearwire already declined the $160 million of the Sprint financing in January and February, saying that it had to do so in order to review the Dish offer.
Clearwire said it has not made any decisions about whether it would accept future installments of the Sprint money.
It did not explain on Wednesday how it could continue talks with Dish despite its apparent flouting of the condition.
Clearwire said a special committee on its board "will pursue the course of action that it believes is in the best interests of Clearwire's non-Sprint Class A stockholders."
Clearwire also said it had changed its agreement with Sprint to remove a condition that requires it to speed up a wireless network upgrade it is planning in order to draw on the final three months of the financing.
The companies had set a Feb. 28 deadline to reach an agreement about the upgrade plan, but Clearwire said on Wednesday that it does not expect to enter into an accelerated build-out agreement with Sprint at this time.
Along with its Clearwire offer, Sprint is seeking U.S. regulatory approval for an agreement to sell 70 percent of its own shares to Japan's Softbank Corp.
Dish shares fell 0.76 percent to $34.87 at mid-afternoon, while Sprint was up 1 percent at $5.84.