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Dish makes $25.5bn counterbid for Sprint

Seeks to tempt shareholders away from Softbank's offer for a 70% stake, but could spark bidding war for Sprint


Published: 15 April, 2013

READ MORE: M&A | US | Sprint Nextel Corporation | LTE

The merry-go-round of US mobile operators continues, this time with Dish Network mounting a $25.5bn bid for Sprint, to counter Softbank's offer for a 70% holding. Dish has been competing with Sprint for control of the latter's Clearwire venture, and has also been linked recently with Deutsche Telekom, which is merging its T-Mobile USA arm with MetroPCS.

Under the new Dish proposal, Sprint investors would get $7 a share, including $4.76 in cash, (equating to $8.2bn in stock and $17.3bn in cash), and would end up with 32% of the combined entity. The offer is 13% above Sprint's closing price on Friday, though the stock topped $7 in trading on Monday, implying that the markets expect the bidding war to go higher. Softbank has proposed buying a 70% stake in Sprint for $20bn.

Dish and its maverick chairman Charlie Ergen are keen to build a mobile business to complement the existing satellite-TV activities, and possibly to create a wholesale wireless model rather like the one envisaged by the failed LightSquared project. Dish has acquired mobile satellite spectrum from two bankrupt players, and received FCC permission to roll out LTE on a national basis, but has said those frequencies will be insufficient to make the business viable, without further purchases or a major carrier partner.

Dish has built up a $10bn cash mountain, partly by selling bonds over the past year, and is said to have access to low cost borrowing. It will now have to wait for a response from the Sprint board, which has backed the Softbank offer, and to see whether the Japanese firm counterbids.

Accepting the Dish proposal would solve one short term problem - the fight over Clearwire. Sprint had offered $2.97 a share to buy the stake - just under 50% - it doesn't already own in the WiMAX-turning-LTE player, but Dish came in with a $3.30 bid for some of the outstanding shares.

For Dish, combining with Sprint would solve a far larger problem - the expense and risk of building its own network, in non-mainstream spectrum, with no track record in mobile, and with Verizon and AT&T having a huge headstart. Sprint has already embarked on its LTE roll-out and its Network Vision platform is designed to accommodate multiple frequencies, which could include Dish's. Ergen said on a conference call: "There's no one company on a national scale that puts it all together. The new Dish/Sprint will do that."

And Dish could bring Sprint not just the additional capital, to accelerate LTE expansion, which it wants from the Softbank arrangement, but the chance to create quad play services (though it would lose the expertise in new services that the Japanese operator would bring). Dish's video services could give Sprint a much-needed differentiator, especially once its flat-rate pricing promises get hard to support, as it battles against the larger, and more 4G-advanced, big two carriers.

Ergen's initial interest in a mobile network is to support multiscreen video and deliver TV services both indoors and outdoors, and on the move. Philip Cusick of JPMorganChase wrote in a client report, quoted by Bloomberg: "This would be a transformative deal for Dish, opening up the broadband business that Chairman Ergen has discussed many times. When combined with Dish's satellite video offer and Sprint's mobile voice network, this could create a very compelling competitor to AT&T and Verizon as well as cable companies long term."

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