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Every spring about this time, you see teens in strangely colored formal wear, stretch limos the size of ocean liners and couples who are too young to order wine in fancy restaurants. Yes, it’s prom season again. And right in the thick of prom season is Sprint, trying to decide which of two serious “promposals” it’s going to like best.
Now that Sprint has received permission from Softbank, its original date to the prom, to listen to the proposal from Dish Networks, things have started to heat up. Sprint has to choose between an offer from Softbank for $20 billion for 70 percent of the company or Dish’s offer for $25.5 billion for all of it. Both purchases include Sprint’s buying the remainder of its wireless networking partner, Clearwire, which it doesn’t already own.
And make no mistake. This is not a simple choice. On one hand, investors will get a lot of Softbank stock, but 30 percent of their investments will still be Sprint. On the other hand, with Dish Networks, they’ll get cash in return for all their stock. But there’s a problem here. If Dish is the successful suitor, Sprint may find itself saddled with a lot of debt, according to Miriam Gottfried’s insightful analysis in The Wall Street Journal.
Of course, if Softbank buys Sprint, there will still be a lot of debt, just not as much as with Dish. But the equations aren’t as obvious as that. Which suitor will be best for Sprint over the long term isn’t necessarily the same answer as which suitor will be best for Sprint’s investors over the short term.
If you look at the whole financial package, it would appear that the deals are roughly equivalent. Softbank is offering less money for less of Sprint. Dish offers more, but gets all of Sprint. But there is other baggage that each suitor will bring when it comes to courting Sprint’s stockholders.
Softbank doesn’t have the best track record in its U.S. acquisitions over the years. While it may have learned from its past mistakes, it’s still an overseas company trying to run a wireless phone company based in Kansas. Will the cultures mesh? Will Softbank understand U.S. consumers, not to mention U.S. regulators? Equally important, what does Softbank bring to the table besides money? Well, it’s a major wireless carrier in Japan, so at the very least, it brings Sprint more buying power, more clout with device makers and maybe some ways to expand its mutual marketing.
Sprint Faces No Easy Task Choosing Between Suitors Dish, Softbank
Dish, on the other hand, isn’t a wireless company. While it’s done well competing in the satellite television business, Dish has no experience in the world of wireless carriers, so regardless of its money, Dish will have to keep Sprint’s management happy enough to hang around and run the company. But there is that other thing called spectrum. Softbank has no wireless spectrum in the U.S. and will depend on what Sprint and Clearwire already own to grow Sprint’s presence in the U.S.
But Dish comes with the one thing that all wireless companies salivate over more than anything else—unused spectrum. Dish bought up a ton of spectrum when it was trying to create a wireless entertainment network, and it has bought up more since then. In other words, Dish has the one thing that Sprint desires most—the spectrum to really expand its network, especially its Long Term Evolution (LTE) network. When combined, the Sprint, Clearwire and Dish spectrum assets would be vast. It would be a game-changer for Sprint.
But while that seemingly endless supply of spectrum is good for Sprint’s future, it’s an asset that Sprint can’t take advantage of immediately. Even if Dish succeeds in wooing Sprint away from Softbank, it would take years for the combined companies to put that spectrum to work. To start expanding Sprint’s network with the spectrum, Dish would need to put a plan together, get the Federal Communications Commission approvals for its planned usage and finally to build out the infrastructure—all of which is time-consuming.
Meanwhile, Softbank’s money is here now. There will be less debt accompanying it. Sprint will still exist in some form because 30 percent of it will remain in investors’ hands. To those investors, Softbank’s proposal will look like a deal with a lot less risk. But the return over the long run will be diminished.
Now it’s almost time to go to the prom. Which “promposal” will Sprint’s special committee think is the sweetest? Will it be the exotic foreigner or the rich guy with better long-term prospects?
You’d think that Sprint would see the obvious synergies of hopping into Dish’s limo, and dancing into the future together. But choosing Softbank means more immediate gratification. You might say that the Softbank limo is not only more stretched, but it’s also a Mercedes. In the long run, Sprint would fare better with Dish. But I suspect the investors and the special committee are more interested in Softbank’s instant gratification.