In raising its bid for Sprint Nextel, SoftBank of Japan is doing its best to make sure Dish Network will have a harder time fighting back.
Announced late on Monday, SoftBank’s new offer will give shareholders additional cash, bumping up the effective value of the deal to about $7.48 a share from $6.30 a share. That’s significantly above the $7 a share that Dish had proposed.
In exchange for that higher price, however, SoftBank requested and received a number of tougher protections. Chief among them is a new stipulation that any superior counterproposal have fully committed financing, which would force Dish to sign papers with its lenders.
While the satellite television company has said that it has the money — it has assembled some $9.3 billion in debt from a group of banks — it hasn’t provided formal commitment letters to its would-be merger partner.
Sprint has also put into effect a shareholder rights plan, commonly known as a poison pill, that effectively limits any one investor outside of SoftBank from owning more than 17 percent of the cellphone service provider. That helps prevent Dish from trying to make an end run around the board by making a tender offer directly to Sprint shareholders, much as it is doing at the wireless network operator Clearwire, of which Sprint is seeking full control.
Both are meant to try to box in Dish and its chairman, Charles W. Ergen, who have confounded Sprint and SoftBank with assaults on a number of fronts. Beyond bidding for Sprint itself, Dish also topped the company’s bid for Clearwire shortly before a shareholder vote on Sprint’s offer.
And with SoftBank prepared to close its offer around July 1, it is betting that it can win over shareholders with additional certainty. Any Dish bid is likely to take months to close, primarily because of a lengthy and complex review by the Federal Communications Commission.
But in some ways, Dish has already forced SoftBank into a more uncomfortable position. SoftBank shifted about $3 billion worth of cash from a planned infusion into Sprint to payouts to Sprint’s shareholders. While that won over skeptics like Paulson & Company, Sprint’s second-biggest shareholder, it will take away from a planned transfusion of money meant to strengthen the cellphone service provider and finance an overhaul of its data network.
It will also leave Sprint carrying more debt, though less than it would with the proposed Dish offer.
And thanks to Dish’s $4.40-a-share bid for Clearwire, the smaller telecommunications company’s stock is trading well above the $3.40 a share that Sprint is offering, just days before a shareholder vote on the proposal. Sprint and SoftBank haven’t announced any plans to raise their bid yet, though SoftBank has said that it would be fine with owning 65 percent of Clearwire instead of the entire company.
On the other hand, Dish’s coy approach appears to have cost it ground as well. Among the points of contention between it and Sprint was the size of the breakup fee in any deal between the two companies, according to a person briefed on the matter. While Dish had offered a payout of about $1 billion if a merger fell apart because of regulatory concerns, Sprint wanted about $3 billion to provide extra comfort.
It’s unclear what Dish will do next. The company’s current bid already envisions adding a significant amount of debt onto Sprint’s balance sheet, and some analysts have questioned whether any cost savings from a merger of the two could support ladling on more debt. That said, Dish has argued that the debt level would be manageable.
For now, Dish has said that it’s evaluating the new SoftBank offer as it considers its options.
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