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Dish's $25.5bn Sprint bid may force others to act

New York, April 16, 2013

Dish Network Corporation, the No 2 US satellite TV provider, offered to buy wireless service provider Sprint Nextel Corporation for $25.5 billion in cash and stock, a move that could inspire other telecoms or video companies to consider their own prospects of combining.

Dish's offer could trump a proposal in October by Japanese wireless operator SoftBank Corporation to buy 70 per cent of Sprint for $20.1 billion.

Unlike SoftBank, which is only proposing an investment in Sprint, Dish is promising to bring customers technical benefits - the ability to watch video anywhere, anytime through a combination of its satellite service with Sprint's wireless network.

Dish's unsolicited bid is the latest twist in a wave of consolidation in the US wireless industry, where carriers are frantically trying to combine to build more powerful networks and compete with market leaders Verizon Wireless and AT&T Inc. It is the boldest step yet by Dish chairman Charlie Ergen, who has spent billions of dollars on wireless spectrum in the last few years and made a counteroffer to a bid by Sprint for Clearwire Corporation, a spectrum-rich wireless company majority-owned by Sprint.

Sprint shares jumped as much as 17.8 per cent on Monday to a near 4-1/2-year high, and slightly topped the value of the Dish bid.

DEAL TRIGGER

BTIG analyst Walter Piecyk said Dish's move could trigger other deals. "Everything should be on the table when you have a major movement like this when a major player in one part of the business is buying a major player in another part of the business as a combined entity," he said.

"If you're a competitor and you don't make a move, it's a lost opportunity," Piecyk added, referring to other telecommunications and video companies that offer some - but not all - of what a combined Dish and Sprint would offer.

Other analysts agreed a Dish and Sprint combination could change the wireless market.

"The idea that Dish can take this huge spectrum holding and pretty quickly put it to use as a mobile services product really adds a new competitor element to the landscape," said Bill Menezes, principal research analyst at Gartner.

Dish's bid comprises $4.76 in cash and 0.05953 share of Dish stock for each Sprint share. The offer, which works out to $7 per share, represents a premium of roughly 12 per cent to Sprint's close on Friday.

"This is the culmination of a lot of years of work. Whether it be the purchase of spectrum, entering auctions, the acquisition of Sling Media, all those things come together now with the merger with Sprint," Ergen said on a conference call with analysts and reporters.

SHAREHOLDERS WELCOME OFFER

Sprint said it would evaluate the proposal, but declined further comment. Some Sprint shareholders welcomed the Dish offer.

"It does appear it offers more value than SoftBank's agreement," said Roy Behren, an investment manager at Westchester Capital, a merger arbitrage investor. "We'd be in favor of any transaction that offers superior value."

Behren's firm held 14 million Sprint shares at the end of 2012, according to the latest publicly available information.

Another investment manager at a top-25 Sprint shareholder also reacted positively to Ergen's offer for the company. "It makes very good sense because he brings more to the table on a bunch of different levels than SoftBank does," said the investment manager, who asked not to be named in the absence of approval to speak to the media.

"I'd vote for the Dish deal. It's more value," said the manager, who sees a combined Dish and Sprint being in a better position to compete, even though they would be higher leveraged than a Sprint that is 70 per cent-owned by SoftBank.

Some analysts said the Dish offer could lead to a bidding war with SoftBank, even though an improved bid could be pricey because of a recent decline in the value of the Japanese yen.

While apples-to-apples comparisons are difficult because SoftBank is offering to buy only part of Sprint, analysts said the fact that the yen is 20 per cent weaker now than last October would be a complicating factor.

13 PC PREMIUM

Dish said its offer was 13 per cent greater than SoftBank's, based on share prices and exchange rates as of last Friday. It was not immediately clear precisely how the offers compared, though, given that SoftBank's offer has multiple steps and is for part, not all, of Sprint.

Dish's offer would leave Sprint shareholders with 32 per cent ownership of the combined company. Under the SoftBank deal they would own 30 per cent of Sprint.

In a statement, SoftBank said its agreement with Sprint would "offer Sprint shareholders superior short and long term benefits to Dish's highly conditional preliminary proposal.

"The SoftBank-Sprint transaction is in the advanced stages of receiving the necessary approvals, and we expect to consummate the transaction on July 1," it added.

SoftBank's billionaire founder and chief Masayoshi Son is known to be as fierce a competitor as Ergen, and analysts don't expect him to walk away quietly.

Dish shares closed down 2.3 per cent at $36.77, while Sprint's rose 13.5 per cent, or 84 cents, to close at $7.06, after rising as high as $7.33 earlier in the session. SoftBank shares were down 7 per cent at 4,360 yen in Tokyo on Tuesday afternoon.

'REALIZATION UNDER SMALLER PLAYERS'

A combined Dish and Sprint would have 63.1 million retail subscribers and $50 billion in annual revenue, Dish said in a regulatory filing.

The play for Sprint came together in the last few months as Dish started to think about alternatives to gain even more spectrum, according to a source familiar with the matter.

As much as Dish wants a wireless partner, analysts said, Sprint also needs a deal to compete more effectively.

"There is a realisation among the smaller players in the US market that they need to merge or partner to compete against Verizon and AT&T, which are both so strong commercially and in terms of network quality," said Kester Mann, telecoms analyst at consultancy CCS Insight.

Barclays is serving as financial adviser to Dish, which said it intended to fund the bid with $8.2 billion in cash from its balance sheet as well as debt financing. Earlier this month, Dish priced a debt offering of $2.3 billion, more than double what was planned.

In its letter to Sprint's board, Dish said it had received a "highly confident letter" from Barclays with regard to its financing, which suggests Dish would have little difficulty raising the funds it needs. Dish said it would have to raise about $9.3 billion total in new funding, though its structure has not yet been set.

Analysts said they considered the offer a good strategic move on Dish's part, albeit a potentially expensive one.

"Forget the execution, next move is there a bidding war for Sprint and how big does it go and how expensive does it get? Dish has synergies SoftBank does not (have)," said Vijay Jayant, an analyst at ISI Group. – Reuters




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