Sprint/SoftBank deal approved by Committee on Foreign Investment

Japanese operator SoftBank's proposed $20.1 billion purchase of 70 percent of Sprint Nextel (NYSE:S) has cleared a major hurdle: The Committee on Foreign Investment in the United States, an interagency body headed by the Treasury and charged with overseeing deals in which a foreign entity gains control of a U.S. company, said "there are no unresolved national security issues" in SoftBank buying 70 percent of Sprint.

The news represents a blow to Dish Network (NASDAQ: DISH), which set up a website, nationalsecuritymatters.com, to highlight its concerns about national security as part of a public relations campaign aimed at undermining SoftBank's bid. Dish has made a $25.5 billion counterbid for Sprint.

Likely smoothing the CFIUS' approval is a number of conditions aimed at giving the government some oversight over Sprint's network and vendors. According to a filing with the Securities and Exchange Commission, as a condition of the review, Sprint and SoftBank have agreed to enter into a "National Security Agreement" with the Department of Defense, the Department of Homeland Security and the Department of Justice. Under the terms of the agreement, SoftBank and Sprint must appoint an independent member to Sprint's board to serve as the "Security Director," who will be approved by the government agencies and serve as contact with the agencies on all security-related matters. Sprint also said that U.S. agencies "will have the right to review and approve certain network equipment vendors and managed services providers of Sprint, as well as of Clearwire once Sprint completes its proposed acquisition of Clearwire."

Sprint is trying to acquire partner Clearwire (NASDAQ:CLWR) for $3.40 per share, and Clearwire shareholders will vote on the deal on Friday. Sprint said that if it is successful in gaining control of Clearwire, the government agencies will have a one-time right to require Sprint to remove and decommission by Dec. 31, 2016 "certain equipment deployed in the Clearwire network." The language is likely a measure intended to potentially remove Huawei equipment from Clearwire's network. 

A U.S. government report last year recommended that U.S. companies not use equipment from Chinese vendors Huawei and ZTE for fear of cyber espionage. ZTE and Huawei have argued vehemently against the claims.

Last week, the Wall Street Journal reported that, according to an unnamed source, ripping Huawei gear out of Clearwire's network could cost up to $1 billion. As it stands, Clearwire CTO John Saw said last week that the company is reducing the amount of Huawei equipment it is using in its TD-LTE network buildout as compared with its existing WiMAX network. "Huawei represents less than 5 percent of our total LTE spend, and we are materially reducing their footprint in our LTE network," Saw told FierceWireless.

The Sprint-SoftBank transaction still needs approval from the FCC and Sprint shareholders. Sprint and SoftBank expect the deal to close in July.

Dish has not specifically pledged to remove the Huawei equipment from Clearwire's network if the company is successful in acquiring Sprint or Clearwire. "We believe the U.S. government should proceed with deliberation and caution in turning over assets of national strategic importance--such as the Sprint fiber backbone and wireless networks--to a foreign-controlled entity with significant ties to China," a Dish spokesman told the New York Times on Tuesday before news of the conclusion CFIUS review was made official. "Oversight and accountability for our national network infrastructure is critical at a time when offshore cyber attacks continue to rise."

A Dish spokesman did not immediately respond to a request for further comment.

For more:
- see this SEC filing
- see this Sprint release
- see this WSJ article (sub. req.)
- see this Reuters article
- see this NYT article
- see this Washington Post article

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