Sprint Nextel Corporation (NYSE:S), the third largest US telecom operator, is getting entangled in a series of wireless deals. While the bidding war between Softbank and DISH Network Corp (NASDAQ:DISH) is getting intense, Sprint Nextel Corporation (NYSE:S)’s own acquisition proposal to buyout the rest of Clearwire Corporation (NASDAQ:CLWR) is facing difficulties. Last Thursday, the Japanese suitor announced that the Securities and Exchange Commission (SEC) gave a go-ahead to Sprint Nextel Corporation (NYSE:S) to mail proxy material to its shareholders for the most-awaited vote slated for June 12.
However, the SEC’s agreement is not all; Softback has to face one major barrier to convince Sprint shareholders to vote for the deal in the special shareholders meeting. DISH Network Corp (NASDAQ:DISH)’s competing offer of $25.5 billion to Sprint has made Softbank’s candidature a bit shaky. In fact, both suitors got involved in a series of heated arguments. Now Softbank’s main challenge is to persuade Sprint Nextel Corporation (NYSE:S)’s investors that its proposal offers better benefits to Sprint in the long run.
The face-off with Softbank
Softbank made a $20.1 billion acquisition proposal for a 70% stake in the Kansas carrier in the second half of last year. Meanwhile DISH Network Corp (NASDAQ:DISH), which is trying to make a name in the wireless telecom space, tried to partner with Sprint Nextel Corporation (NYSE:S) but failed. Finally it made a counteroffer to the carrier to diversify from its core satellite TV business.
Now the two suitors are engaged in verbal fights with one another. In an interview, DISH Network Corp (NASDAQ:DISH) Chairman Charlie Ergen stated that his bid is undoubtedly superior to Softbank’s offer which is ‘just math’. DISH Network Corp (NASDAQ:DISH) is an American company, which is more culturally and geographically aligned with Sprint’s way of working, and so a Dish-Sprint merger would be easier than a Softbank-Sprint Nextel Corporation (NYSE:S) combination. In addition, Ergen also points out that if Softbank acquires Sprint it would mean US airwaves under foreign ownership, but a combination with Dish would keep the company US owned. Also, DISH Network Corp (NASDAQ:DISH)’s proposal would give 32% of the joint entity to Sprint’s shareholders versus 30% if Softbank’s offer is accepted.
Dish’s plan
If Dish succeeds in its bid for Sprint, the company plans to offer bundled services to its customers like Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T). Subscribers to these services would be able to watch TV programs on their laptops and tablets using the wireless network.
Also, consumers can continue to benefit from Sprint’s unlimited data plan even after the merger. Dish’s wireless spectrum, combined with Sprint’s, would give the combined entity a solid spectrum position that would be able to hold increased data traffic.
Ergen also has his eyes on Clearwire Corporation (NASDAQ:CLWR)’s spectrum, for which Sprint has made an acquisition bid. He plans to use the airwaves of the combined company to construct a wireless network covering more urban areas. For the rural segment, Dish plans to supply internet using its satellites.
Softbank snaps
SoftBank CEO Masayoshi Son said that Dish’s plan are mere words, while the Japanese carrier’s plans are more realistic; which aims at enhancing Sprint’s core wireless business and improving services for a better customer experience in the long run.
Softbank says that its merger with Sprint would give higher value to stakeholders than a combination with the ‘highly leveraged’ satellite TV provider. Son also said that Dish’s proposal is ‘incomplete and illusory,’ which would weaken the joint company’s balance sheet with a huge debt burden and restrict capital improvements. The Softbank CEO is confident that Softbank will win over Sprint without raising its offer.
In addition, the satellite pay TV provider does not have experience in the telecom space, and lacks the relevant know-how. Softbank, on the other hand, is an experienced player in building wireless networks. This would help infuse technical expertise in Sprint that Dish, as ‘an amateur to our mobile industry’, cannot bring.
Though Sprint is way behind Wireless biggies Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T), the company has become an attractive acquisition target. The credit of this mostly is due to Sprint’s access to Clearwire Corporation (NASDAQ:CLWR)’s huge spectrum mass, and its acquisition attempt for the remaining valuable airwaves of the regional carrier. Both Sprint and Clearwire Corporation (NASDAQ:CLWR) jointly have much more spectrum for network expansion than any other US wireless player.
However, the opposition from Clearwire Corporation (NASDAQ:CLWR) investors is requiring Sprint to raise its bid for the carrier.
Battle with Clearwire investors
Mount Kellett Capital Management joined forces with other Clearwire investors, including Glenview Capital Management, Chesapeake Partners Management, and Highside Capital Management to press Sprint for a higher bid. Shareholders have expressed their dissatisfaction with Sprint’s offer, particularly after Dish made a counter bid of $3.30 for the company before it made a bid for Sprint. The $2.97 a share offer is extremely low for the Bellevue carrier’s prized spectrum asset.
The money-losing regional telecom provider is in need of a capital infusion, and said that it would need about $1.7 billion to cover the shortage of cash and run operations through 2014. Meanwhile, last month Verizon Communications Inc. (NYSE:VZ) offered to buy Clearwire Corporation (NASDAQ:CLWR) spectrum in some cities for $1 billion to $1.5 billion. A special Clearwire committee has been formed to assess the proposal.
To conclude
The opposition from Clearwire investors continues to raise doubt regarding Clearwire’s acquisition by Sprint. But the cash-crunched company said last month that it would withdraw another $80 million in financing from Sprint for the third time. It is therefore most likely that the spectrum king will get sold out to Sprint.
Also, at the moment Sprint is circled with suitors. The future of the company is uncertain depending on which suitor it chooses to go with. There are different sets of advantages and disadvantages that each proposal carries. However, I believe that a merger with Softbank would benefit the company more than with Dish, given the Japanese carrier’s know-how in the wireless arena.
The article Bidding War For This Telecom Player Heats Up originally appeared on Fool.com is written by Rajesh M..
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