Dish Network $25B Bid Aims to Grab Sprint From SoftBank's Embrace

 
 
By Wayne Rash  |  Posted 2013-04-15
 
 
 

Dish Network $25B Bid Aims to Grab Sprint From SoftBank's Embrace


In a series of offers that grows more complex and more perplexing with time, Sprint Nextel now finds itself the most sought-after company in the wireless industry.

Unfortunately, for Sprint, most of the potential outcomes don't include Sprint as a valued part of the transaction. Even SoftBank, which thought it had a deal to acquire most of Sprint, may find itself on the outs. What's happening? Well, that's where the story starts to get weird.

The weird part starts during the second week of April, when a Dish Networks representative had a meeting with Deutsche Telekom officials to ask about buying T-Mobile. DT, which was in the midst of helping T-Mobile USA through its acquisition of MetroPCS via a reverse merger, told Dish that it might want to talk, but not until after the merger with MetroPCS closed.

Significantly, DT agreed to hold its majority interest in the surviving company for at least 18 months as part of the deal to keep MetroPCS shareholders happy. So a merger with T-Mobile is unlikely at best.

Once it got this news, Dish focused its $25 billion gaze on Sprint. Unfortunately for Dish, Sprint was well into its deal with SoftBank to be acquired for some $20 billion. Meanwhile, Sprint was even farther along toward acquiring the minority stake in Clearwire that it doesn't already own. The way the deal would work is that Sprint would buy Clearwire, which would clear the way for Softbank to buy Sprint.

So far, it's fairly straightforward.  But it gets even more complicated than that. Before offering to buy all of Sprint, Dish made a spoiler bid of $3.30 per share back in January for the half of Clearwire that Sprint didn't already own.

Complicating matters even more, according to reports in The Wall Street Journal, is Verizon's bid to buy spectrum from Clearwire that Sprint was already in the process of buying to clear the way for the Softbank buyout.

Sprint holds a majority stake in Clearwire, so the company would have to agree to sell some of Clearwire's spectrum to Verizon. If Sprint were to agree to sell some of that Clearwire spectrum, that would pay off some of Clearwire's debt, which would be a good thing. But it would mean that Sprint and thus SoftBank would have less spectrum for Long Term Evolution (LTE ) expansion after their deal closes.

Dish, on the other hand, already has a lot of spectrum and no way to use it. This is why the company has been so frantic to buy a wireless carrier. There is, after all, not a lot a satellite television service can do with radio spectrum if it doesn't have a wireless service. "I would want to get my hands on a mobile network," said Mike Roberts, principal analyst for Informa Telecoms and Media. "They want to use this spectrum."

Roberts said that he sees some significant synergies if Dish were to acquire Sprint. He points out that an overseas partnership faces big challenges. And since Dish would be able to bring more than spectrum to the table, it would also give Sprint a way to offer Internet and television along with wireless, something that Verizon and AT&T already do. But what about SoftBank?

Dish Network $25B Bid Aims to Grab Sprint From SoftBank's Embrace


Dish has offered to pay the breakup fee if Sprint decides that it's going to abandon its deal with SoftBank. But SoftBank has a say in this, too. The most obvious option is that SoftBank can up the ante and outbid Dish.

I'm sure that one way or the other, lawyers would become involved, and that could perhaps postpone a deal longer—perhaps long enough for Clearwire and then Sprint to run out of money. If Sprint doesn't acquire Clearwire in the immediate future, then the company would have no choice but bankruptcy. Then, no matter what happens, any deal to buy Clearwire or its spectrum would be tied up for a long time, perhaps years.

With all of the wireless players dancing around Sprint, two scenarios seem realistic. One is that Softbank buys Sprint as planned. The other is that Dish buys Sprint. But as you'd expect, it's not that simple.

If Softbank ups the ante and buys Sprint and its newly acquired Clearwire, then Sprint becomes part of a much larger global telecom. The combined buying power of both companies means Sprint can get new devices faster and cheaper, which will help it grow its customer base. Clearwire will give it the spectrum it needs for LTE. Eventually Dish, finding no wireless partners, will sell its wireless spectrum to any of the wireless companies that want to spend the money.

If Dish is successful, then it pays the $25 billion to buy Sprint, the breakup fee (reportedly around $600 million), and contributes its spectrum to the mix. Whether the Clearwire spectrum stays with Sprint or gets sold to Verizon to raise money is an open question that only Sprint (or whoever owns Sprint) can answer. I suspect that unless Sprint's finances get a lot worse than they are now, Verizon won't get good news.

But what about T-Mobile? Eventually, the T-Mobile MetroPCS deal will be closed, after all. There, the question is money. AT&T already offered $39 billion for T-Mobile in its ill-fated acquisition bid, and that was before T-Mobile got its breakup fee, its new spectrum and MetroPCS. Dish reportedly has about $10 billion in the bank. It's hard to know what T-Mobile would be valued at, but given its increase in value, I'm guessing about $50 billion to $60 billion.

Will Dish be able to afford a red-hot property like T-Mobile after it's combined with MetroPCS? Despite the lust for a wireless company demonstrated by Dish, I think this game is too rich for its blood. Maybe it should look for a smaller carrier—or just sell its spectrum and buy something else instead.

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