During the last few months, the airwaves have been buzzing with telecom M&A news. The telecom industry is nearing its maturity, forcing cash-rich players to look for acquisitive growth instead of organic growth.
The most fascinating acquisition struggle has been raging on in the U.S. telecom industry. The Japanese telecom giant Softbank and DISH Network Corp. (NASDAQ:DISH) are trying to acquire Sprint Nextel Corporation (NYSE:S). On the other hand, Dish and Sprint are also facing off in an effort to control Clearwire Corporation (NASDAQ:CLWR). Recent developments indicate that this struggle is all but over, and the winners are set to soar on their victories.
Bidding War
Softbank and DISH Network Corp. (NASDAQ:DISH) have been engaged in a closely contested bidding war to acquire Sprint Nextel Corporation (NYSE:S) over the last few months. The Softbank deal was facing resistance from Sprint’s shareholder, who wanted the $25.5 billion (for 100% ownership) Dish proposition. To overcome this resistance, Softbank has increased its $20.1 billion offer to $21.6 billion. This would give investors a payout of $7.65, up from earlier offers of $7.30. However, this increase would come at the cost of a 78% ownership of Softbank (70% in the previous deal) and $3 billion less direct capital investment from Softbank. DISH Network Corp. (NASDAQ:DISH) has declined to increase its offer for Sprint Nextel Corporation (NYSE:S), which makes Softbank the winner of this bidding war.
Softbank can be a good long term partner to Sprint. The Dish deal would have created a highly leveraged company, which would not have been able to invest in infrastructure. Softbank doesn’t only have the necessary wireless experience (it is the third largest telecom operator in Japan), but can also bring the cash that Sprint Nextel Corporation (NYSE:S) needs to compete with Verizon and AT&T.
According to Softbank, it will close the Sprint deal by July. Softbank Chief Executive, Masayoshi Son, has made his intentions clear by outbidding DISH Network Corp. (NASDAQ:DISH). Son plans to become the top telecom provider in Japan and has been making acquisitions to achieve this goal. The Sprint Nextel Corporation (NYSE:S) deal will open doors for Son in the United States by give Softbank control of the third largest U.S. telecom operator.
Lucrative Airwaves
Dish’s attempts to acquire Sprint were weak to begin with, but the company was totally committed to its Clearwire Corporation (NASDAQ:CLWR) bid. Sprint Nextel Corporation (NYSE:S) already owns a 51% stake in Clearwire and was willing to pay $3.40 per share to minority shareholders, to gain total control of the company. Just like the Softbank bid, this offer had also met with heavy resistance from shareholders and Clearwire board. The shareholders thought DISH Network Corp. (NASDAQ:DISH)’s $4.40 offer superior, despite the legal hurdles it faced.
In an extraordinary move, Sprint has increased its offer to $5 per share. This should all but seal the fate of Clearwire Corporation (NASDAQ:CLWR). The new offer also includes a $115 million break-up penalty that Clearwire will have to pay if the deal doesn’t succeed. According to Sprint Nextel Corporation (NYSE:S), the new deal has support from 45% of Clearwire’s minority shareholders. The telecom giant still needs to win over more shareholders because any deal will require support from at-least 50% minority shareholders. There are strong expectations that Sprint will take control of Clearwire Corporation (NASDAQ:CLWR), as the shareholder meeting will approve the $5 per share bid on June 24.
4G and Cloud
The fast growth of handheld devices has increased data demand. As most handheld devices primarily rely on cloud, fast internet offerings have become a vital part of telecom deals. To compete with AT&T and Verizon, Sprint urgently needs to improve its 4G network. This is why the acquisition of Clearwire means so much to the company. Clearwire has a state of the art 4G network, and Sprint Nextel Corporation (NYSE:S) wants control over these airwaves. A ‘Sprint,’ which owns Clearwire Corporation (NASDAQ:CLWR), is much more valuable to Softbank. The Japanese telecom giant is known for its aggressive business ideology and wants to become the leading operator in the world. Softbank’s job of pushing Sprint to the top will become much easier with the 4G network of Clearwire.
Valuations
The U.S. telecom industry is the most lucrative in the entire world. This can be assessed from the reluctance of Vodafone in letting selling its 45% stake in Verizon. Control over the third largest telecom operator in the States would considerably improve the valuations of Softbank.
After the recent increase by Sprint Nextel Corporation (NYSE:S) in its bid for Clearwire Corporation (NASDAQ:CLWR), the deal is all but closed. The state of the art 4G network it will get from Clearwire also demands better valuations for Sprint. It is currently trading around $7 per share when Softbank has already offered $7.65 for the company. This gives a 10% return on the acquisition price alone.
Bottom-line
Softbank has emerged as the ultimate winner, in this latest struggle to control U.S. airwaves. DISH Network Corp. (NASDAQ:DISH) has been thwarted in its attempts to enter the wireless industry. It has not only lost to Softbank on its Sprint bid, but has also been outbid by Sprint Nextel Corporation (NYSE:S) for Clearwire Corporation (NASDAQ:CLWR). Shares of Dish have been rallying since April and can decline on these negative developments. This makes DISH Network Corp. (NASDAQ:DISH) a good short target in the short run.
Mohsin Saeed has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article A Dish Best Served Short originally appeared on Fool.com.
Mohsin is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
