The War for Sprint Might Be Over

by Tom Taulli | June 11, 2013 3:03 pm

A little more than a year ago, Sprint (S[1]) appeared to be headed for oblivion. But a lot has changed since then. Sprint has nearly tripled in roughly 14 months, thanks primarily because it has become a big-time dealmaking target.

Back in October, Japanese firm Softbank (SFTBF[2]) agreed to purchase a 70% stake in the company for about $20.1 billion. To help facilitate this deal, Sprint then made a $2.1 billion offer to buy the 50% of equity it did not own in Clearwire (CLWR[3]), which owns valuable spectrum assets.

In early January, Dish Network (DISH[4]) entered the fray, making a bid for Clearwire before lobbing a $25.5 billion offer for Sprint a few months later. But Softbank has returned the volley, recently upping its bid to $21.6 billion.

The new proposed transaction would involve a $16.6 billion payment to shareholders and $5 billion for Sprint’s internal operations. In the end, Softbank would wind up with 78% of the entity.

Softbank and Dish actually have similar motives. Both companies have reached saturation points in their core businesses — Softbank thinks it can supercharge things by entering the U.S. market, whereas Dish thinks it can get plenty of juice by bundling mobile services with satellite TV and Internet access.

Softbank believes it can get the deal done within a month — bad news for Dish, whose offer could easily take six months or more to finish.

But perhaps the most important factor is price. While Dish has the higher headline number of $25.5 billion, it’s also for the whole enchilada, vs. Softbank, which is looking to buy 78% of Sprint. In that context, Dish’s offer essentially is for $7 per share, less than Softbank’s updated $7.65-per-share bid.

What’s more, Dish’s transaction involves a combination of cash and stock, which can be a moving target. Thus, it’s no surprise that Sprint’s second-largest shareholder, Paulson & Co., approves of the revised bid from Softbank.

Dish has a deadline of June 18 to make its final bid, so it wouldn’t be the most shocking thing to see the company make one last-ditch bid. After all, CEO Charles Ergen has a history of making hostile deals, and a billionaire’s ego that shouldn’t be underestimated.

Nonetheless, the odds still seem against a counter-bid. Financing for an improved deal could be tough to obtain, especially considering Dish’s heightened risk of integration. Unlike Softbank, Dish doesn’t have any experience operating a mobile network, which isn’t exactly comforting considering Sprint remains pitted against the U.S. duopoly of AT&T (T[5]) and Verizon (VZ[6]).

In fact, considering all these difficulties, Dish might be better off conceding this fight.

Tom Taulli runs the InvestorPlace blog IPO Playbook[7]. He is also the author of High-Profit IPO Strategies[8]All About Commodities[9] and All About Short Selling[10]. Follow him on Twitter at @ttaulli[11]. As of this writing, he did not hold a position in any of the aforementioned securities.

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