Dish Network (NASDAQ:DISH) faces a June 18 deadline to submit its "best and final" offer for Sprint Nextel (NYSE:S), an effort complicated by the collapse of talks between Dish and Sprint over a reverse-breakup fee and Dish's need for more capital.
According to a report from Bloomberg that cites unnamed sources, negotiations between Sprint and Dish fell apart last week after a series of disagreements, including the value of a reverse-breakup fee. According to the report, Sprint pushed for a $3 billion reverse-breakup fee while Dish wanted a $1 billion reverse-breakup fee. As part of the agreement between Sprint and SoftBank, SoftBank has agreed to pay a reverse-breakup fee of just $600 million if it is unable to purchase 78 percent of Sprint for $21.6 billion.
"The Sprint board wants a reverse-breakup fee from Dish that is five times what it got from SoftBank," a source told Bloomberg. "That tells you something about whom the Sprint board likes and doesn't like."
According to Bloomberg, Sprint executives were concerned that Dish chief Charlie Ergen was unable to show committed financing for its Sprint bid. As for Dish, the company was stymied by Sprint's reported inability to produce documents necessary for the negotiations. Further, the Financial Times reported that Sprint had expected Dish to present an official offer by the end of last week, but that Dish asked for more time.
And hanging over the situation are worries that Sprint is losing ground to rivals AT&T Mobility (NYSE:T) and Verizon Wireless (NYSE:VZ), a situation exacerbated by the uncertainty over Sprint's future. Sprint hopes to close its transaction with SoftBank by July; Dish believes it can close its transaction with Sprint within four months, Bloomberg reported, while Sprint thinks it's closer to a year--another reason Sprint is leaning toward SoftBank.
As the Wall Street Journal noted, Dish needs to raise more capital to fund a higher offer for Sprint--a challenge considering Dish is already taking on close to $12 billion in debt to finance its current bid. The WSJ noted Ergen may need to engage an equity partner to boost its offer for Sprint.
SoftBank yesterday increased its bid for Sprint Nextel by 7.5 percent to $21.6 billion in an effort to counter Dish Network's competing $25.5 billion bid for Sprint. The move underscored SoftBank CEO Masayoshi Son's desire to gain control over Sprint--he had previously said he would not increase SoftBank's offer.
Moreover, SoftBank's improved offer includes the stipulation that any counterproposal have fully committed financing. And Sprint has instituted a shareholder rights plan, commonly known as a poison pill that essentially prohibits any one investor outside of SoftBank from owning more than 17 percent of Sprint. Both stipulations are intended to stymie Dish's efforts to acquire Sprint.
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