Sprint-SoftBank Merger Approval by CFIUS Poses New Obstacle to Dish Bid

By Wayne Rash  |  Posted 2013-05-29

Sprint-SoftBank Merger Approval by CFIUS Poses New Obstacle to Dish Bid

Dish Networks is going to have some tough sledding in its efforts to squelch the planned acquisition by SoftBank of 70 percent of Sprint. Sprint and SoftBank announced on May 29 in an 8-K filing with the U.S. Securities and Exchange Commission that their merger had received approval from the Committee on Foreign Investment in the United States (CFIUS).

The next and essentially final step to the merger is Federal Communications Commission approval. The FCC is expected to begin its consideration of Sprint's application soon.

In its filing, Sprint revealed details of its National Security Agreement with the U.S. government. That agreement means that Sprint will appoint a security director to its board. The security director will ensure that the requirements of the U.S. government are met. In addition, the agreement includes a provision that Sprint will remove and decommission equipment on the Clearwire network once Sprint's acquisition of Clearwire is complete and the agreement provides that Sprint will get U.S. approval of network equipment vendors.

The requirement to remove equipment from specific vendors and to get approval for network equipment purchases is unusual but not unprecedented. Similar requirements have been placed on other companies where the U.S. government has determined that a security risk exists.

Currently, Congress and officials in the Department of Homeland Security and the Department of Defense have expressed concern over reported intelligence risks associated with Huawei and ZTE telecom equipment. Clearwire's management, meanwhile, is fighting its own merger battles, including claims that the merger with Sprint isn't a good deal for stockholders.

Now that the Sprint–SoftBank merger has cleared every hurdle except for the FCC approval, the merger appears to have a green light. In their joint announcement, Sprint and SoftBank said that the companies expect to close the merger by July 2013. Sprint's acquisition of the remainder of Clearwire would be completed prior to that. The only factor that could potentially derail the SoftBank acquisition is the competing offer from Dish Networks to buy all of Sprint.

However, Dish is very late to the game in its acquisition effort. The only serious uncertainty is a report from Sprint's Special Committee that's considering the Dish offer. If the special committee finds that the Dish offer is acceptable to Sprint, any merger that might take place would likely require the rest of 2013 to accomplish.

Such a delay would mean that the acquisition of Clearwire, which depends on funding from SoftBank, would not take place, and that in turn means that Clearwire could find itself in dire financial straits, perhaps including bankruptcy.

Sprint-SoftBank Merger Approval by CFIUS Poses New Obstacle to Dish Bid

While Dish could attempt to buy Clearwire out of bankruptcy, Sprint still owns more than half of the company, and there's no assurance that Dish could make that happen.

Because of the delays that would go along with the proposed acquisition of Sprint by Dish, as well as the significant financial complications that would accompany such an acquisition, it's hard to see how Sprint's Special Committee would return a favorable report. Even though Dish is offering more money for all of Sprint than SoftBank is offering for 70 percent, it's not clear that it's an offer that's too good for Sprint to refuse.

So what's going to happen? Dish Networks may be out of luck because the company waited too long to act. Had Dish moved nine months ago, it might have succeeded in acquiring Sprint by now. But now it's a case of too little, too late. It appears inevitable that the Special Committee will declare that Dish did not make a Superior Offer allowing the Sprint board grant final approval to SoftBank's offer. Then perhaps Dish will seek an injunction to delay the merger with SoftBank, but it's hard to see how that will stick.

Likewise, the efforts by Dish to buy T-Mobile from Deutsche Telekom appear to be doomed. DT has made a significant commitment to beef up T-Mobile. When T-Mobile negotiated the recent merger with MetroPCS, DT agreed to remain the majority owner of T-Mobile. With MetroPCS stockholders owning most of the rest, it's hard to see a place for Dish.

By the time summer comes to an end, Sprint will almost certainly be part of SoftBank, T-Mobile will remain independent and Dish will be out of luck at least as far as those companies are concerned. But Dish has other opportunities. AT&T has reportedly been looking for suitors to help shore up its financials and may welcome an overture from Dish. And of course, Dish could offer to buy any number of regional carriers in the United States, which in turn would give it a toehold into the wireless service provider market that it so much desires.

But in the telecom industry, what will actually happen isn't necessarily related to what makes sense. For an ego-driven company such as Dish, the trophy on the wall is at least as important as the financials behind it. So expect that Dish will make some last ditch effort to put up legal barriers to the Sprint merger, including pursuing its weak claims that the whole deal is a risk to national security.

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