Far From Backing Down, Dish Bids For Sprint Itself

April 15th, 2013 by · 15 Comments

This sure is turning into a high stakes game of wireless M&A poker. In what will surely be the story of the week, Dish has now launched a $25.5B bid for Sprint Nextel (NYSE:S, news, filings) itself. That works out to something like $7/share, which Dish says represents a 13% premium to the bid for 70% of Sprint by Softbank and is 12.5% above where Sprint's stock closed on Friday. 

Dish has been trying to disrupt Sprint's purchase of Clearwire for months now, but has found it difficult to get its foot further in the door. While not turning them down outright, Clearwire has started taking Sprint's funding offer and late last week played the default card by saying it is considering not paying interest on its debt in June.

Softbank's bid for Sprint was the driver for Sprint's move on Clearwire, and I guess Dish CEO Charlie Ergen decided that he might as well go for broke and take on Softbank directly. Well, if he didn't have Masayoshi Son's attention before, he surely does now.

The bid is for $4.76/share in cash, and $2.24/share in DISH stock, which means Dish will have to come up with some $17.3B in cash to fund the purchase. That's no small amount, but with the $8.3B in cash they have on hand plus a "Highly Confident Letter" from their financial advisor Barclays - it's certainly not unrealistic.

Dish even went as far as creating a microsite with details of the deal.  They foresee $37B in net present value of synergies and growth opportunities, and a net leverage of 4.7x including the Clearwire deal at $2.97.  Yep, that last part could hit Clearwire shareholders today. If Dish's competing offer for Clearwire evaporates in favor of this deal, those arguing for a better deal from Sprint will lose their main bargaining chip.

But does Dish have a chance of stopping Softbank at this late date?  Or could it even turn into some sort of three-way deal, since Softbank only wanted 70% anyway?  I suppose we'll just have to wait to see what Sprint's board of directors says about all this...

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Categories: Internet Backbones · Mergers and Acquisitions · Wireless

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15 Comments So Far


  • Grant Lewis says:

    Rob – you thought i might be off base. Let me re-post my prior comments on this subject:

    “Grant Lewis says:
    January 9, 2013 at 7:37 am

    Lets think differently about this. What if DISH wants Sprint’s wireline business? I just can’t stop thinking this is an addition by subtraction action – push for spectrum but through compromise get what they want which is wireline business? Clearly Sprint wants Clearwire. They won’t give up easily. But its also clear they may have to give up something to satisfy regulatory desires. Its also clear that Sprint is deep fiber assets supporting its wireline business. If they get the wireline business and thus presumably the last mile assets it better positions access to DISH’s end game of content subscribers.

    If there’s any truth to anything we’ve heard its possible DISH is exploring all avenues of content distribution other than just spectrum and satellite. So i’d not be surprised if during his pursuit of spectrum he does a deal with the likes of a carrier for additional distribution of content vehicles.

    As i said in a previous post I know there will be people who will immediately jump on this as ridiculous but fiber optic links are best known for their consistent performance as VZ FIOS recently ranked highest customer satisfaction for performance of content delivered. Fiber is immune to EMI/RFI, including solar- and space-sourced interference, which can be a real problem over long distances. On the flip side fiber networks take a lot of work to install and maintain.”

    • Yes, that was definitely closer to the mark than I gave you credit for originally, but i’d note that the terms ‘fiber’, ‘wireline’, and ‘content distribution’ were absent from the PR. Not that they might not be part of the underlying reasoning, but you’d think they’d get more of a mention.

      • Grant Lewis says:

        They spoke about the value of the underlying network assets aiding in absorbing the significant network capacity constraints currently being faced by all operators independent of the combination. The investor presentation goes on to suggest that the combined assets will aid in the distribution of the content (wireless, wireline, etc) where significant emphasis is the onramp of the combined spectrum _but_ clearly an important piece is the underlying global network connecting it all together.

    • en_ron_hubbard says:

      Grant,

      Why would Ergen possibly want an under-invested twenty year old long haul network? Someone in the long haul business would want the revenue (at a low price) and likely close the network.

      • Grant Lewis says:

        I don’t know exactly what he is thinking but can presume that he like i believe that the combined assets make the overall company attractive for later acquisition. As i stated earlier this year a Citigroup analyst by the name Jason Bazinet pointed out in a research note the satellite television service provider Dish is likely to eventually be acquired either by AT&T or another provider. The working theory is that AT&T would like to own the spectrum Dish has piled up; another theory is that there would be significant synergies from a Dish/DirectTV deal, and that the video market is now a lot more competitive than when the government rejected an attempt to merge the two satellite TV companies back in 2001. Synergies could be as high as 3B. Either way if DISH pulls this off … not an easy task …. they have become a whole lot more attractive due to the integrated networks, combined spectrum and long term synergies and GTM opportunities. Lastly, on your under funded investment posit … Level 3 purchased Global Crossing even though GC had underfunded its network substantially and yet there was synificant synergies to be realized. I believe the combined assets outweighs the individual risks and therefore warrants the overall combined entity.

        • en_ron_hubbard says:

          Grant,

          I understand Ergen’s motivation for ALL of Sprint. My only point is that the wireline assets are NOT the motivation, its the wireless assets. GLBC was attractive to LVLT because they were obviously both in the long haul business which drove most of the synergies.

          • Grant Lewis says:

            i agree that the wireless assets are the target. But it seems academic to me that there are those who suggest the long haul, fiber, IP backbone is deminimus in this transaction. One can’t transport all that wireless data without a backbone.

            • en_ron_hubbard says:

              Grant,

              We must disagree. The value attributed to a twenty year old “pin drop” network is indeed , I think, de minimus. It’s probably on the disposition list because those services can be leased far cheaper than maintained after figuring the cash you might get from the sale. How do you think T Mobile or any other wireless operator w/o its own national backbone gets it done?

              Reasonable people can disagree about things such as this.

              • Grant Lewis says:

                I would concur with your assessment that the wireline network when measured against some competitive wireline operators is likely (and has been) underfunded and therefore is again not the majority of intent for acquisition. Even though Sprints network is not as up to date from next gen investments perspective there are a few things i would counter with which are the following:

                – Based upon regulatory filing it would appear that even though there is a bulk of network investment going towards the wireless side there is still approximately $280 million investments going in capacity related to support both legacy network and Network Vision equipment. Additionally, it appears additional Wireline capital expenditures were $58 million in the fourth quarter so while not as much as wireless investments still not a small amount.
                – Sprints wireline revenues of $949 million for the 4th quarter. While the above figure is significantly less than the 9B in wireless revenue there revenue in one quarter is approximately as much of XO’s former Enterprise Division which had total yearly revenue of 964M in revenue for the full year which included ALL xo’s products and services for enterprise prior to going private. Additionally, fourth quarter wireline revenues increased 1 percent, primarily as a result of increased IP volumes which shows trends consistent with my next point.
                – When it comes to IP networks and AS (autonomous system) ranking out of 44,064 total AS systems tracked by CAIDA Sprint total network size as ranked by AS connectivity (total traffic reachable/connected globalblly) is 11th only falling behind Level3(1), Level3 acquired Global Crossing AS (2), Tinet (3), Cogent (4), Telia (5), NTT (6), Tata (7), Verizon former UUNET/MCI AS(8), Telecom Italia(9), XO (10). See the following for more info – http://as-rank.caida.org/?mode0=as-ranking&n=50&ranksort=1.

                In conclusion, while it may appear we disagree on the value of the IP backbone, its clear to me that the underlying IP network will benefit the combined entity should it go through.

                Finally, thanks for thinking i am reasonable …. i am only trying to have a good, honest, quid pro quo on the deal as i see it and value your responses and feedback.

    • Just where Sprint’s wireline assets come into play in the Dish/Softbank bidding war is unclear to me, but my feeling is that on a relative basis it’s pretty neutral. In other words, both bidders probably view them from the same angle – it helps tie things together but really it’s the spectrum and the wireless biz that they’re after.

      • Grant Lewis says:

        I think you are under estimating moving content and network implication. Again wireless assets are key but intangible value for network is overlooked.

  • en_ron_hubbard says:

    Oh what fun. One thing for certain is that the Sprint Board will need to take this seriously– they have to. So this a.m. S goes up and CLWR goes down.

  • What would it take for Dish and Softbank to make peace and team up to buy Sprint and give it the funding needed to really compete?

    • en_ron_hubbard says:

      Now that would be really complicated to get done even if the desire was there:
      — they both need control to access and consolidate the S cash flow.
      — Personalities– both are run by very controlling individuals
      — Regulatory timing would be messed up
      — Just too complex
      But what would be real fun is if the Softbank response was to offer to acquire Dish. There has been speculation that Ergen’s ultimate goal is an exit. CLWR’s suicide threat is another fascinating aspect of the whole situation. Just so much fun (esp for an S shareholder 🙂

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