Dish: Our offer for Sprint is better 'for national security' than SoftBank offer

Dish asks FCC to pause SoftBank/Sprint review
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Dish Network (NASDAQ: DISH) asked the FCC to pause its review of Japanese operator SoftBank's proposed acquisition of 70 percent of Sprint Nextel (NYSE:S) while Sprint's board considers Dish's own counterbid for Sprint. Dish said its offer for Sprint "is better for the American consumer, better for Sprint's shareholders, and better for U.S. national security than the SoftBank proposal."

Dish's comments are likely a reference to concerns about foreign ownership of domestic telecommunications companies as well as specific concerns that Sprint could use equipment from Chinese vendors ZTE and Huawei in its network. Indeed, Sprint and SoftBank recently promised lawmakers that Sprint will not use gear from Chinese vendor Huawei in its network, according to Rep. Mike Rogers (R-Mich.), the chairman of the House Permanent Select Committee on Intelligence. His comments came after the Wall Street Journal reported that the U.S. government wants to be able to review Sprint's network equipment purchases as a condition of SoftBank's proposed $20.1 billion purchase of 70 percent of Sprint.

Huawei and ZTE were singled out in a federal report advising against the purchase of the companies' equipment due to concerns over Chinese spying, accusations the companies have repeatedly and vehemently denied.

In a filing with the FCC, Dish said that its own proposal for Sprint, made public on Monday, "introduces substantial uncertainty about the fate of the SoftBank proposal." In the filing, Dish argued that its offer includes "an estimated $37 billion in net present value synergies and growth opportunities that cannot be matched through acquisition by a foreign carrier with little existing in-market infrastructure."

An unnamed SoftBank executive told Bloomberg that currently SoftBank does not plan to increase its offer to Sprint. Instead, the company will focus on its existing plans for Sprint, but has not ruled out future action, the executive said. SoftBank declined to comment, according to Bloomberg.

Meanwhile, the Journal reported that, according to unnamed sources, Sprint has established a special committee on its board to evaluate Dish's offer. Such special committees are common when a company receives an acquisition offer. 

Sprint spokesman Scott Sloat declined to comment on the Journal report or Dish's filing. The FCC declined to comment, according to Bloomberg.

Under Dish's proposed offer, Sprint shareholders would receive $7 a share, consisting of $4.76 in cash and stock representing about 32 percent of the combined company, vs. 30 percent under the SoftBank deal, according to Dish. That equates to $17.3 billion cash and $8.2 billion stock, according to Bloomberg. Dish said the total offer represents a 13 percent premium on the SoftBank deal, which Sprint and SoftBank announced in October.

Sprint is a much larger company than Dish, with $35.3 billion in revenue last year, compared with $14.3 billion for Dish, making the deal a heavy lift financially. According to the Journal, which cited information from CapitallQ, the combined company would have more than $36 billion in debt, even before adding in the $9 billion Dish indicated it would borrow to get the deal done.

Also complicating the matter is that Sprint is in the process of acquiring Clearwire (NASDAQ:CLWR), which Dish has also made an unsolicited counterbid for. Dish has said that its offer to Sprint is not contingent on Clearwire accepting Sprint's offer, yet Dish executives made clear this week that Clearwire's 2.5 GHz spectrum will be a key part of the total combined company.

Investment analysts remain divided over whether Dish's offer is better for Sprint. Canaccord Genuity analyst Greg Miller said Sprint is likely going to wait to see what SoftBank does in response to Dish's offer.

"We see little reason for Sprint to offer an opinion on that matter in the near term; rather we expect silence from all parties until everyone understands what SoftBank's next move could be," he wrote in a research note. "Absent a counter bid, it remains unclear to us if Sprint will push the SoftBank proposal to a shareholder vote or even the Clearwire bid to such a vote when a higher competing offer is out there. The only option that might seem to draw a higher SoftBank bid would be for the Sprint board to deem the Dish bid superior."

Additionally, some of Sprint's bondholders are clashing with some Sprint investors that have praised Dish's offer. The bondholders argue that a combined Dish/Sprint would hold too much debt.

"The proposed transaction with Dish leaves the combined entity with potentially too much leverage for a company with investment-grade competitors," George Goudelias, a money manager at Seix Investment Advisors, which oversees $28 billion and owns Sprint debt, told Bloomberg. "As a high-yield investor in Sprint, you want the deeper pockets of SoftBank, which can keep the company liquid."

For more:
- see this FCC filing
- see this Reuters article
- see this Bloomberg article
- see this second Bloomberg article
- see this WSJ article (sub. req.)
- see Barron's article
- see this separate WSJ article (sub. req.)
- see this third Bloomberg article

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