Furthermore, the combined company would take advantage of opportunities for cross selling to 49 million Sprint retail subscribers (including Clearwire Corporation (NASDAQ:CLWR) retail subscribers) and 14 million DISH household customers. It would have a higher value proposition from bundling, lower acquisition cost, and lower churn with integrated experience. However, in terms of financial structure, the combined company would have around $35.3 billion in debt, not including the $9 billion debt financing that DISH would incur for the merger deal.
At $37 per share, DISH Network Corp. (NASDAQ:DISH) is worth around $16.9 billion on the market. The company is valued at 7.3 times EV/EBITDA. Sprint Nextel is trading at around $7 per share, with a total market cap of $21.5 billion. It is valued a bit cheaper at 5 times EV/EBITDA. SoftBank has the similar valuation to Sprint Nextel Corporation (NYSE:S). The company is trading at around $22 per share, with a total market cap of $48.6 billion. The market values SoftBank at around 5 times EV/EBITDA.
The market leader is more profitable and cheaper
At its current price, DISH is valued more expensively than the U.S. market leader, DIRECTV (NASDAQ:DTV). With 20.1 million subscribers in the U.S. and 15.5 million subscribers in the Latin American region, DIRECTV is considered the biggest DTH digital television service provider in the U.S.
DISH Network Corp. (NASDAQ:DISH) ranked second with 14 million subscribers. DIRECTV has witnessed rapid growth in the past ten years, generating growing cash flow, but the business has relied heavily on debt financing. Most of DIRECTV’s profit, around $4.15 billion, came from DIRECT U.S., while DIRECTV Latin America contributed only $955 million in operating profits in 2012.
DIRECTV (NASDAQ:DTV) seems to be more profitable with a higher operating margin at 17%, while the operating margin of DISH was lower at 13.9%. At the end of 2012, DIRECTV had a negative equity of $5.43 billion while employing as much as $17.2 million in long-term debt. At $56 per share, DIRECTV is worth around $32.1 billion on the market. It is valued at a cheaper valuation than DISH, at 6.6 times EV/EBITDA.
My Foolish take
In terms of synergies, DISH Network Corp. (NASDAQ:DISH) seems to be more superior. However, the combined company would create a debt-laden company, which could restrain the combined company from investing to expand the Sprint Nextel Corporation (NYSE:S) network to compete with AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ). I personally think that investors should avoid all those three companies during this time, as their stock prices will be quite volatile and dependent on bidding news.
The article Large Buyout Offers in the Wireless Telecom Industry originally appeared on Fool.com and is written by Anh HOANG.
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