Japan’s Softbank is sticking to its guns for control of Sprint, claiming its offer is superior to Dish Network’s surprise US$25.5bn bid to buy the number three US mobile operator.
The Tokyo-based telco said the US$20.1bn offer it launched back in…
Japan’s Softbank is sticking to its guns for control of Sprint, claiming its offer is superior to Dish Network’s surprise US$25.5bn bid to buy the number three US mobile operator.
The Tokyo-based telco said the US$20.1bn offer it launched back in October has “superior short and long term benefits” to the US DTH giant’s “highly conditional preliminary proposal”.
In a short statement today it added: “The SoftBank-Sprint transaction is in the advanced stages of receiving the necessary approvals and we expect to consummate the transaction on 1 July 2013 with the terms already agreed.”
Charlie Ergen, the former professional blackjack player behind Dish, made good on his reputation for being an unpredictable and highly ambitious dealmaker when he made his move for Sprint.
His offer comprises US$17.3bn in cash and US$8.2bn in stock. Sprint shareholders would receive US$4.76 and 0.05953 Dish shares for each Sprint share they own, equivalent to US$7 per share, which Dish said represents a 13% premium to the Softbank deal.
Dish’s plan would also give Sprint shareholders around 32% of the merged company, which is higher than the 30% they would be left with in a standalone Sprint under Softbank’s plan.
The Japanese telco is seeking to buy 70% of Sprint by offering US$7.30 a share in cash for 55% of its shares, with the remaining stock converting into equity for a new publicly-traded entity, called New Sprint.
Softbank has also already provided US$3.1bn in financing under the deal through seven-year notes that are convertible into a reported 16% of Sprint’s stock. According to Dish, that bond would give Softbank a 5% stake in its proposed combination with Sprint.
The Softbank/Sprint transaction is also subject to a US$600m break-up fee.
Dish eyes US$11bn in cost savings
Dish believes a combination with Sprint could realise US$37bn in synergies and revenue opportunities, including US$11bn in cost savings.
Tom Cullen, president of corporate development at Dish, said the merged group could save US$1.3bn in its first year, representing 3.3% of total spend.
“We both run large call centre operations, billing and collections operations, direct marketing and retention organisations because the functions of subscriber based businesses are so similar,” he explained in an investors call.
Perhaps more importantly, a combination would finally give Dish the terrestrial partner it has been looking for to build out a nationwide network with its repurposed satellite spectrum.
The company has been on the hunt for a partner to help realise value from the spectrum assets it picked up in 2011, when it acquired mobile satellite operators TerreStar Networks and DBSD North America out of their respective Chapter 11 bankruptcy processes.
Late last year Dish was given the regulatory nod to use this spectrum for a terrestrial LTE network, but the approval came with strict build-out conditions, including a requirement for 70% of it to be constructed within seven years.
In recent months, as the DTH operator scoured a consolidating US telecoms sector for alliances, it has reportedly considered bids for MetroPCS and T-Mobile USA.
In January it launched a counterbid for smaller wireless player Clearwire in an attempt to thwart Sprint from a full takeover, pledging a US$3.30 per share deal that includes US$2.2bn for a large amount of the operator’s spectrum. That offer was still on the table as SatelliteFinance was going to press.
However, signs that Dish was preparing a more sizeable acquisition came earlier this month when it priced upsized senior notes worth US$2.3bn, which it said could be used for “wireless and spectrum-related strategic transactions”.
The bond came on top of previous debt issuances to give Dish nearly US$10bn in cash in total.
The company said it plans to draw on US$8.2bn from its balance sheet to fund the US$17.3bn cash portion of its proposed Sprint acquisition, with the remainder coming from newly-issued debt. The merged company would reportedly carry more than US$36bn in debt on top of the US$9bn Dish is planning to raise.
Softbank’s deal would leave Sprint with a reported US$21.3bn in debt. In addition, its US$3.1bn convertible bond is part of a wider financing package that would give the new Sprint US$8bn in total capital.
Softbank to fend off Dish bid
Despite generating fewer direct synergies from acquiring Sprint, Softbank is seen as having deeper pockets than Dish to defend what is thought to be Japan’s largest overseas acquisition.
Analysts at New Street Research said Softbank would not be prepared to lose Sprint, and it will likely use its substantial resources to beat off rival bids.
“As such, Dish may force Softbank to pay more, but it is unlikely that Dish will prevail,” it stated.
Even still, unlike Dish’s offer, Softbank’s bid is being investigated by the Department of Justice over links to Chinese suppliers such as Huawei, which has been highlighted as a national security concern.
Currency exchange differences could also come into play as Softbank and Dish wrestle for control of Sprint. The Japanese group, which is currently looking to raise US$2bn in notes due 2020, hedged its acquisition plan last year with a forward exchange rate, and has reportedly saved just over US$2bn as the yen weakens against the dollar. However, the exchange rate differences have also made the prospect of making counterbids more expensive for the telco.
With some Sprint shareholders already touting the benefits of a Dish takeover, the appearance of what could be Ergen’s long-awaited end game also has implications for another favourite of the rumour mill: a possible merger between Dish and its DTH peer DirecTV.
Some industry spectators are seeing the announcement as an indication that any talk of a much-discussed marriage between the two pay-TV giants has quietened.
Barclays is Dish’s financial adviser on the proposed acquisition of Sprint. Softbank is being financially advised by The Raine Group, Mizuho and Deutsche Bank. Softbank’s legal advisers include Morrison & Foerster as lead counsel, Mori Hamada & Matsumoto as Japanese counsel, Dow Lohnes as regulatory counsel, Potter Anderson Corroon as Delaware counsel, and Foulston & Siefkin as Kansas counsel.
Sprint’s co-lead financial advisers are Citigroup Global Markets, Rothschild and UBS. Skadden, Arps, Slate, Meagher and Flom is lead counsel to Sprint. Lawler, Metzger, Keeney and Logan is acting as regulatory counsel, and Polsinelli Shughart is Kansas counsel.
