Dish makes $25.5B offer to buy Sprint, countering Softbank

There is finally an answer to what Charlie Ergen and Dish Network (NASDAQ: DISH) intend to do with the company's $10 billion cash pile: buy Sprint Nextel (NYSE:S). Dish has made an offer worth $25.5 billion to buy 68 percent of Sprint, countering Japanese operator Softbank's $20.1 billion deal to buy 70 percent of Sprint.

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 in play," Ergen told the Wall Street Journal. "We think we've made an offer that's much more compelling than the Softbank transaction."

Sprint said its board of directors will evaluate Dish's proposal "carefully and consistent with its fiduciary and legal duties. The company does not plan to comment further until the appropriate time."

On a conference call this morning, Ergen, Dish's chairman, said that cable companies are now able to provide video in the home and wireless carriers can deliver video to consumers outside of the home, but that no one company can combine those experiences. "There really is no one company on national scale that puts it all together," he said. "The new Dish/Sprint company will do that."

Dish said the deal will result in "synergies and growth opportunities" estimated at $37 billion in net present value, including an estimated $11 billion in cost savings.

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.

Sprint's board will now need to decide whether to accept Dish's offer over Softbank's, and if it picks Dish's bid, Softbank will have an opportunity to increase its own offer, according to the Journal. Ergen said on the conference call that it is too soon to tell whether Dish will be drawn into a bidding war with Softbank. "Obviously, we'll have to see how this plays out," he said, adding that both Dish and Softbank see Sprint as "a very attractive asset."

Dish now has a record $10 billion in cash in hand, about as much as oil and gas giant Exxon Mobil, according to Bloomberg. The company's cash is again throwing the wireless industry into limbo; Sprint and Softbank had expected to finalize their deal by mid-year. The FCC has said it is on track to finish its review the Sprint-Softbank deal by the end of May.

Separately, Dish has made a conditional counteroffer to Clearwire, and Ergen noted that Dish has not formally withdrawn its Clearwire offer. However, his comments and those of Thomas Cullen, Dish's executive vice president for corporate development, made it clear that Dish thinks Clearwire's 2.5 GHz spectrum will be a key part of the total combined company. However, Ergen said that Dish's offer to Sprint is not contingent on Clearwire accepting Sprint's offer.

And now it appears Clearwire is also in flux: According to the Wall Street Journal, Verizon Wireless has made a bid for Clearwire's spectrum worth up to $1.5 billion. Click here for that story. 

Ergen has said that his company wants to use its 40 MHz of AWS-4 spectrum to create an LTE-Advanced wireless network to allow customers to access video content as well as voice and data inside and outside the home. He has also said that Dish would like to partner with a wireless company to do that, but that if Dish cannot, it will look to sell its airwaves.

Dish must cover at least 40 percent of the population in areas covered by its spectrum with a wireless network in the next four years, or face penalties. Further, the FCC has said Dish must cover at least 70 percent of that population within seven years.

If Dish--or a future licensee of the AWS-4 spectrum--fails to hit the 40 percent mark in four years, it must hit the 70 percent coverage threshold in six, rather than seven years. Further, if Dish fails to hit the 70 percent mark in any economic area as defined by the FCC, it will automatically lose its right to deploy service there.

For more:
- see this release
- see this Dish letter
- see this Dish fact sheet
- see this Bloomberg article
- see this WSJ article (sub. req.)
- see this separate WSJ article (sub. req.)
- see this NYT article

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