Early this morning, Dish Network announced an unsolicited offer to purchase Sprint for $25.5 billion, at a 13% premium over the current $20 billion price for 70% of the company currently offered by Japanese carrier SoftBank.
While the Sprint-SoftBank deal is all but complete with the only remaining hurdles being shareholders holding out for better terms and less debt, the Dish Network deal is being seen as the satellite television provider running interference on Sprint’s attempts to purchase the rest of Clearwire that it doesn’t already own as a condition of the SoftBank stake purchase (which faces its own set of issues) as well as Dish Network now being forced into desperate measures as it looks for any way it can to enter the wireless industry. On top of the Sprint proposal, Dish Network is also running interference on the MetroPCS/T-Mobile reverse merger, underscoring the desperation.
While the $25.5 billion offer may seem like an attractive offer on paper for the whole company, a deeper look at the offer demonstrates just how little substance the offer has, as Dish Network would have to take out a $9 billion loan just to complete the since Dish is a significantly smaller company in terms of annual revenue compared to Sprint. The biggest sticking point to the proposal, however is the amount of debt the new entity would carry after the proposed purchase, with $36 billion in combined debt.
After the complete debacle that was the Nextel “merger of equals”, Sprint would be repeating history with the Dish Network offer, as the debt load alone would drag down and erase the positive gains made by the company over the past few years. Even though the purchase by Dish Network would keep the company in American hands, the SoftBank stake purchase still makes sense because both companies have similar goals and business models, whereas a Dish purchase would relegate the carrier to a mere mobile offering in a long desired Dish “triple play” bundle with very little in the way of autonomy for much else.
Dish Network wants the easiest way into the wireless industry without having to make the expensive and sometimes painful capital investment necessary in order to build out the infrastructure it needs to take advantage of its sizable spectrum holdings and is instead looking for an already established company in order to hand off the grunt work, which explains why it was so persistent in its attempts to purchase Clearwire, but not before that group of shareholders became more reticent about the Sprint purchase after the initial Dish offer of $3.30/share, and not before taking $160 million in loan facilities provided by Sprint within the last 2 months.
Dish Network is tenacious, as it has already launched a dedicated microsite detailing the supposed advantages of the purchase for both Sprint and Dish Network customers and shareholders, though the comparison to TV staple Seinfeld is unwise, as it implies that the deal is relying on random chance and luck to be completed, rather than a more methodical approach. Sprint is officially remaining silent on the offer, and is now legally obligated to investigate the offer in the interest of its shareholders.
