Who knew that satellite television hardware and services provider Dish Network would have both the money and the chutzpah to bid $25.5 billion to move into the shark-infested wireless carrier business? Nonetheless, this is what Dish did on April 15 when it offered that amount—mostly in cash—for Sprint Nextel.
Dish Network, based in Meridian, Colo., is offering to pay shareholders $17.3 billion in cash and $8.2 billion in stock, or $7 per share. This represents a 13 percent premium to the value of the existing SoftBank proposal, Dish Network Chairman Charles Ergen wrote in a letter to Sprint Chairman of the Board Jim Hance.
Japan’s Softbank, No. 3 in its market, is attempting to move into North America by acquiring Sprint Nextel, currently the third-largest U.S. telecom company behind AT&T and Verizon Wireless. On Oct. 15, 2012, Softbank announced plans to take control of Sprint Nextel by purchasing a 70 percent stake for $20 billion. That deal is still pending.
Dish Chairman: “Dish-Sprint Will Be a Superior Company”
However, Dish believes it brings more to the table for customers than Softbank can provide, Ergen said during a call with analysts.
“Dish-Sprint will be a superior company, combining the third-largest wireless carrier with the third-largest pay TV provider,” Ergen said. “We could become maybe No. 2 or even No. 1.”
Ergen said Sprint shareholders will benefit from a higher price “with more cash while also creating the opportunity to participate more meaningfully in a combined Dish/Sprint with a significantly enhanced strategic position and substantial synergies that are not attainable through the pending SoftBank proposal.”
The proposed combination will result in “synergies and growth opportunities estimated at $37 billion in net present value, including an estimated $11 billion in cost savings,” Ergen said.
Dish Network, which services about 14 million subscribers in the U.S., would consolidate its home broadband and television businesses with the Sprint cell phone operation into a single service—and monthly bill—for its customers, simplifying the process for users.
Dish Network Dishes Out $25.5 Billion Bid for Sprint Nextel
Survival of the Fittest?
A Dish-Sprint merger could turn out to be a long-term survival mechanism for both companies.
“This is one of the few ways that both companies can survive the shakeout being driven by bundles,” Rob Enderle, principal analyst at Enderle Group, told eWEEK.
“Comcast, AT&T and Verizon are all providing bundles which include telephone and cable,” Enderle said. “Bundles are how Microsoft drove out the competitors with Microsoft Office, and they tend to force out the companies that can’t bundle.
“With this merger, and using technologies like WiMAX, the combined companies should be able to provide compelling alternatives to these competitive programs; without it, both firms have little chance of long-term survival,” he said.
Sprint said in a statement that it would “evaluate this (Dish) proposal carefully and [consistently] with its fiduciary and legal duties. The company does not plan to comment further until the appropriate time.”
Dish Network provides satellite television, audio programming and interactive television services to commercial and residential customers in the United States. As of March 2013, the company provided services to about 14 million subscribers. It employs about 34,000 employees—with more than 25,000 of them located in the United States.
Sprint Runs Other Wireless Brands
Sprint Nextel, based in Overland Park, Kan., operates multiple wireline and wireless networks serving 56 million consumer, business and government customers in the United States, Puerto Rico and the U.S. Virgin Islands, primarily under the Sprint brand. Sprint Nextel, through its various subsidiaries, also offers wireless services under the Boost Mobile, Virgin Mobile and Assurance Wireless brands.
Sprint Nextel expects to face even more competition in the future because the parent company of T-Mobile USA, Germany’s Deutsche Telekom, is inching closer to a multibillion-dollar agreement to buy MetroPCS. That acquisition could be weeks away.
SoftBank has operations in broadband, fixed-line telecommunications, e-commerce, Internet, IT services, finance, media and marketing, and other businesses. SoftBank was established in Tokyo in 1981 and had a market capitalization of about $47 billion.