Dish launches $25B bid for Sprint

April 15th, 2013

Peter Nolan

Dish Networks announced this morning that it has submitted a merger proposal for Sprint Nextel valued at $25.5 billion, putting itself into competition with Japan’s Softbank to take over the wireless carrier.

Dish said it is offering Sprint shareholders a total consideration of $25.5 billion, consisting of $17.3 billion in cash and $8.2 billion in stock. Sprint shareholders would receive $7.00 per share, and the cash and stock combination would represent a 13 percent premium to the value of the existing SoftBank proposal, according to Dish.

“The Dish proposal clearly presents Sprint shareholders with a superior alternative to the pending SoftBank proposal,” said Charlie Ergen, Chairman of DISH Network. “Sprint shareholders will benefit from a higher price with more cash while also creating the opportunity to participate more meaningfully in a combined Dish/Sprint with a significantly-enhanced strategic position and substantial synergies that are not attainable through the pending SoftBank proposal.”

A Sprint representative declined to comment on the proposal.

Dish’s proposal is a culmination of the company’s long-desired entry into the wireless business. With the company’s core satellite-TV business slowing amid competition from rivals such as DirecTV and the traditional cable and telecom providers, Dish and Ergen have long coveted a way to bundle its services with a wireless offering. Over the past few months, the company has been building up its war chest for such an ambitious deal.

Dish’s offer, of course, throws a wrinkle into an existing deal that’s already along the path for approval. Last October, Softbank launched a $20.1 billion bid to acquire 70 percent of Sprint. Under that deal, SoftBank would pay shareholders $12.1 billion and also give the carrier $8 billion in cash for network upgrades and other improvements.

In December, advancing closer toward a full consummation of the Softbank deal, Sprint said it had agreed to a $2.2 billion deal to acquire the shares of network company Clearwire that it doesn’t already own in order to boost its spectrum assets as it continues its 4G LTE rollout.

Then in January, Dish inserted itself into the proceedings, first by making an unsolicited bid to buy Clearwire for $5.15 billion, and days later asking the U.S. Federal Communications Commission to pause its review of the Softbank-Sprint merger.

Sprint, however, argued to Clearwire shareholders that its takeover deal was still superior to Dish’s because it had significant contracts in place with the upstart 4G wireless provider. Indeed, Sprint has a contract in place to use Clearwire’s 4G WiMax service, and plans to use its planned 4G LTE network to augment its own coverage.

Dish said today that its offer for Sprint breaks down this way:

Sprint shareholders would receive $7.00 per share, based upon DISH’s closing price on Friday, April 12, 2013. This consists of $4.76 per share in cash and 0.05953 DISH shares per Sprint share. The cash portion of DISH’s proposal represents an 18% premium over the $4.03 per share implied by the SoftBank proposal, and the equity portion represents approximately 32% ownership in the combined DISH/Sprint versus SoftBank’s proposal of a 30% interest in Sprint alone. Together this represents a 13% premium to the value of the existing SoftBank proposal.

Sprint has struggled to keep up with larger rivals Verizon Wireless and AT&T, has looked to Softbank to inject some life into the business. The Softbank offer represented additional capital to fund its own 4G LTE roll out, which has lagged behind its rivals — particularly in the big cities, as well as guidance from Softbank’s leadership. A wireless leader in its own right, Softbank’s executive team has experience operating in the highly competitive Japanese market, where it also must face off against two larger rivals.

Sprint has kept a relatively low profile in the last several months as it worked to close its deal with Softbank, which would take the form of a merger. But the company will have to take a serious look at Dish’s offer.

At the same time, smaller rival T-Mobile, which Sprint had previously considered a merger with, is working to complete its own deal with regional prepaid provider MetroPCS. Dish had reportedly sought a deal with T-Mobile as well.

Dish, meanwhile, has long sought to offer wireless service and a means to create a two-way communication bridge to its customers. Its satellites can only broadcast TV signals to its customers homes, and it must still rely on individual Internet service providers to offer services such as on-demand video. But a wireless service of its own means it has a more direct line to its customers.

Dish has already purchased a healthy swath of spectrum from several companies out of bankruptcy proceedings, as well as previously purchased spectrum from government auctions. The company had previously stated an intent to create its own wireless service.

Dish is holding a conference call this morning to discuss the offer, and we’ll update the story when we hear more details.

The following is the letter that Ergen sent to Sprint’s board:

Board of Directors

Sprint Nextel Corporation

6200 Sprint Parkway

Overland Park, KS 66251

Attn: James H. Hance, Jr., Chairman of the Board

Dear Jim:

On behalf of DISH Network Corporation (“DISH”), I am submitting this proposal for a merger between DISH and Sprint Nextel Corporation (“Sprint”). Our proposal provides Sprint shareholders with a superior alternative to the pending SoftBank Corporation (“SoftBank”) proposal. It provides more cash and affords your shareholders the opportunity to participate more meaningfully in a combined DISH/Sprint, which will benefit from a significantly enhanced strategic position and substantial synergies that are not attainable through the pending SoftBank proposal.

We are offering Sprint shareholders a total consideration of $25.5 billion, consisting of $17.3 billion in cash and $8.2 billion in stock. Sprint shareholders would receive $7.00 per share, based upon DISH’s closing price on Friday, April 12, 2013. This consists of $4.76 per share in cash and 0.05953 DISH shares per Sprint share. The cash portion of our proposal represents an 18% premium over the $4.03 per share implied by the SoftBank proposal, and the equity portion represents approximately 32% ownership in the combined DISH/Sprint versus SoftBank’s proposal of a 30% interest in Sprint alone. Together this represents a 13% premium to the value of the existing SoftBank proposal.

Our proposal provides a highly-compelling and unique opportunity for Sprint shareholders. We are offering an ownership interest in a combined company with a comprehensive product and services suite, a significantly enhanced subscriber base, considerable financial and operating scale, as well as a spectrum portfolio that would lead the industry. As a result, this merger creates sizable cost and CAPEX savings and promises extensive new revenue opportunities.

Leveraging both companies’ existing assets and expertise, we will be the only company able to offer a fully-integrated, nationwide bundle of in- and out-of-home video, broadband and voice services to meet rapidly evolving customer preferences. The new company’s assets will immediately establish national cross-platform leadership and will position the company to deliver innovative services while expanding our collective subscriber base.

The proposed combination will result in synergies and growth opportunities estimated at $37 billion in net present value. This includes an estimated $11 billion in cost savings, representing approximately $1.8 billion in annual run-rate cost synergies by the third year after closing.

Further, our combined national footprints and scale will allow us to efficiently develop our joint spectrum assets to provide advanced services to the millions of homes with inferior or no access to competitive broadband services.

I am proud of the company we have built and believe we will be an excellent partner to Sprint. Like Sprint, DISH possesses a strong tradition of innovation and industry leadership. We created the third largest pay-TV provider while competing with incumbent cable monopolies and other entrenched operators. DISH has consistently led our industry in service and technology delivery with award-winning innovations like Hopper® with Sling®. Our history of value creation is outstanding. Investors in our 1995 initial public offering have enjoyed a total return of 27 times their original investment, significantly outperforming the broader markets and our peers. We also have a proven track record of responsible capital management.

DISH has significant experience structuring and consummating strategic transactions and only needs to complete confirmatory due diligence, which we believe can be done quickly with your cooperation. We have examined your merger agreement with SoftBank and we would be prepared to execute a definitive merger agreement on substantially similar terms and conditions. Though not a condition of our proposal, we anticipate that the pending transaction with Clearwire would be completed. We are confident that we can obtain all necessary approvals within a reasonable timeframe.

We intend to fund the $17.3 billion cash portion of the transaction using $8.2 billion of our balance sheet cash and additional debt financing. We have a proven track record in raising capital to fund strategic initiatives and have received a Highly Confident Letter from our financial advisor, Barclays, confirming our ability to raise the required financing.

We would be pleased to discuss our plans for the combined company and we are available at any time to meet with the Sprint Board, management and advisors to answer any questions about our proposed merger. We are confident that the Sprint Board will share our view that this proposed merger offers an excellent opportunity for the equity holders of Sprint to realize a superior value for their shares that is unavailable to them under the SoftBank proposal.

While it would have been our preference to have confidential discussions regarding this proposed merger, your existing agreement with SoftBank and the impending deadlines associated with your shareholder vote, will compel us to confirm our intentions publicly. We look forward to hearing from you.

Very Truly Yours,

DISH Network Corporation

Charlie Ergen

Chairman