A dramatic turn of events in the ongoing story of U.S. carrier consolidation: Dish Network is launching a $25.5 billion bid for number-three carrier Sprint, amounting to $17.3 billion in cash and $8.2 billion in stock. If successful, the deal would effectively snatch Sprint out of the hands of Japanese carrier Softbank, which in October announced that it would pay $20.5 billion for a 70% stake in Sprint.
The deal would see pay-TV giant Dish pay $4.76 per share for Sprint; the carrier closed trading at $6.22 on Friday, April 12, but the news is sending Sprint stock up. In pre-market trading it’s up by over 15% after slumping last week.
The deal, as Dish notes in an SEC filing made this morning, will give Dish a much larger user base and revenue profile (if more burden in the form of a capital-intensive network). Sprint currently has 47.5 million subscribers, compared to 14.2 million for Dish. The idea will be that Dish will cross-market its pay-TV services to Sprint’s wireless subscribers, and market wireless services to its pay-TV subscribers. Quad-play is alive and well!
It’s an aggressive move by the pay-TV provider to get its hand deeper into the wireless game as smartphones and tablets become ever-more popular, and mobile data becomes many users’ default channel for browsing online, accessing apps, watching video and more.
“The DISH proposal clearly represents superior value to Sprint shareholders, including greater ownership in a combined company that is better positioned for the future with more spectrum, products, subscribers, financial scale and new opportunities,” chairman Charles Ergen said in a statement.
The Softbank bid has had the mark of approval from Sprint. The announcement in October was made with significant pomp and circumstance with an event in Japan at which Softbank’s CEO Masayoshi Son extolled the virtues of synergies and economies of scale between the two companies, specifically around LTE and the fact that both are developing services on the same frequency. At the same event, Dan Hesse, Sprint’s CEO, was also very supportive:
“This is pro-competitive and pro-consumer,” he said at the time, because it helps fight the “AT&T and Verizon duopoly.” There is also strength in being number-three together: “When we look at what Softbank has accomplished as the number-three carrier in Japan, we can learn something from that,” he added.
In contrast, Dish’s offer has a decidedly more unsolicited look about it:
“We would be pleased to discuss our plans for the combined company and we are available at any time to meet with the Sprint Board, management and advisors to answer any questions about our proposed merger,” Charles Ergen writes. “We are confident that the Sprint Board will share our view that this proposed merger offers an excellent opportunity for the equity holders of Sprint to realize a superior value for their shares that is unavailable to them under the SoftBank proposal.”
Sprint would need to pay a $600 break fee if it backed out of the Softbank merger. Ergen told the WSJ, whih first reported the news today, that Dish would cover that cost in its offer.
Dish has been circling around different wireless assets for some time now. Just last week, it was reported that Dish wanted to merge with T-Mobile USA, which itself is merging with MetroPCS. Dish is also eyeing up Clearwire, the wireless carrier in which Sprint has also been an investor.
But in the WSJ, Ergen noted that the Sprint deal appeared more likely than the Clearwire bid. Speaking in the past tense (an implication that the door is now closed on Clearwire?) he said that the “deck was stacked against us” when it came to Clearwire because of what WSJ refers to as “contractual obligations.” This has partly to do with Clearwire shareholders that are trying to force Sprint to increase its own buyout offer of Clearwire, which is tied up with debt financing. All the same, Dish notes in one of its SEC filings today that were both deals to go through, it would create a business that generated in 2012 (on a pro-forma basis) some $50 billion in revenues and $9.4 billion in EBITDA.
It’s important for Dish to make a move one way or the other: it owns wireless spectrum — 40 MHz in the 2 GHz band — but no network on which to run services.
On the other hand, if all of these attempts fall through, it remains a takeover candidate itself, partly because of the spectrum shortage among bigger carriers looking for more airwaves for their own fast-growing mobile data services. AT&T earlier this year was mentioned as one possible Dish acquirer.
Full announcement below.
DISH Network Proposes Merger with Sprint Nextel Corporation for $25.5 Billion
U.S. technology leader with track record of disrupting entrenched incumbents presents superior alternative to pending SoftBank proposal – DISH offers more cash and a greater ownership stake
Sprint shareholders would receive $7.00 per share, consisting of $4.76 in cash and stock representing approximately 32% in a company with a significantly enhanced strategic position
Creates an industry-leading spectrum portfolio and the only company that can offer customers a fully-integrated, nationwide bundle of in- and out-of-home video, broadband and voice services
Delivers substantial synergies and growth opportunities estimated at $37 billion in net present value, including an estimated $11 billion in cost savingsENGLEWOOD, Colo.–(BUSINESS WIRE)–DISH Network Corporation (NASDAQ: DISH) today announced that it has submitted a merger proposal to the Board of Directors of Sprint Nextel Corporation (NYSE: S) for a total cash and stock consideration of $25.5 billion. The DISH proposal clearly represents superior value to Sprint shareholders, including greater ownership in a combined company that is better positioned for the future with more spectrum, products, subscribers, financial scale and new opportunities.
DISH is offering Sprint shareholders a total consideration of $25.5 billion, consisting of $17.3 billion in cash and $8.2 billion in stock. Sprint shareholders would receive $7.00 per share, based upon DISH’s closing price on Friday, April 12, 2013. This consists of $4.76 per share in cash and 0.05953 DISH shares per Sprint share. The cash portion of DISH’s proposal represents an 18% premium over the $4.03 per share implied by the SoftBank proposal, and the equity portion represents approximately 32% ownership in the combined DISH/Sprint versus SoftBank’s proposal of a 30% interest in Sprint alone. Together this represents a 13% premium to the value of the existing SoftBank proposal.
“The DISH proposal clearly presents Sprint shareholders with a superior alternative to the pending SoftBank proposal,” said Charlie Ergen, Chairman of DISH Network. “Sprint shareholders will benefit from a higher price with more cash while also creating the opportunity to participate more meaningfully in a combined DISH/Sprint with a significantly-enhanced strategic position and substantial synergies that are not attainable through the pending SoftBank proposal.”
Mr. Ergen continued, “A transformative DISH/Sprint merger will create the only company that can offer customers a convenient, fully-integrated, nationwide bundle of in- and out-of-home video, broadband and voice services. Additionally, the combined national footprints and scale will allow DISH/Sprint to bring improved broadband services to millions of homes with inferior or no access to competitive broadband services. This unique, combined company will have a leadership position in video, data and voice and the necessary broadband spectrum to provide customers with rich content everywhere, all the time.”
The proposed combination will result in synergies and growth opportunities estimated at $37 billion in net present value, including an estimated $11 billion in cost savings.
DISH has provided additional information regarding the proposed merger via a dedicated transaction microsite that can be accessed at www.CompleteDishSolution.com.
Barclays is acting as financial advisor to DISH.
Following is text of the letter that DISH sent to Sprint Nextel Corp. Board of Directors on April 15, 2013.
Board of Directors
Sprint Nextel Corporation
6200 Sprint Parkway
Overland Park, KS 66251
Attn: James H. Hance, Jr., Chairman of the BoardDear Jim:
On behalf of DISH Network Corporation (“DISH”), I am submitting this proposal for a merger between DISH and Sprint Nextel Corporation (“Sprint”). Our proposal provides Sprint shareholders with a superior alternative to the pending SoftBank Corporation (“SoftBank”) proposal. It provides more cash and affords your shareholders the opportunity to participate more meaningfully in a combined DISH/Sprint, which will benefit from a significantly enhanced strategic position and substantial synergies that are not attainable through the pending SoftBank proposal.
We are offering Sprint shareholders a total consideration of $25.5 billion, consisting of $17.3 billion in cash and $8.2 billion in stock. Sprint shareholders would receive $7.00 per share, based upon DISH’s closing price on Friday, April 12, 2013. This consists of $4.76 per share in cash and 0.05953 DISH shares per Sprint share. The cash portion of our proposal represents an 18% premium over the $4.03 per share implied by the SoftBank proposal, and the equity portion represents approximately 32% ownership in the combined DISH/Sprint versus SoftBank’s proposal of a 30% interest in Sprint alone. Together this represents a 13% premium to the value of the existing SoftBank proposal.
Our proposal provides a highly-compelling and unique opportunity for Sprint shareholders. We are offering an ownership interest in a combined company with a comprehensive product and services suite, a significantly enhanced subscriber base, considerable financial and operating scale, as well as a spectrum portfolio that would lead the industry. As a result, this merger creates sizable cost and CAPEX savings and promises extensive new revenue opportunities.
Leveraging both companies’ existing assets and expertise, we will be the only company able to offer a fully-integrated, nationwide bundle of in- and out-of-home video, broadband and voice services to meet rapidly evolving customer preferences. The new company’s assets will immediately establish national cross-platform leadership and will position the company to deliver innovative services while expanding our collective subscriber base.
The proposed combination will result in synergies and growth opportunities estimated at $37 billion in net present value. This includes an estimated $11 billion in cost savings, representing approximately $1.8 billion in annual run-rate cost synergies by the third year after closing.
Further, our combined national footprints and scale will allow us to efficiently develop our joint spectrum assets to provide advanced services to the millions of homes with inferior or no access to competitive broadband services.
I am proud of the company we have built and believe we will be an excellent partner to Sprint. Like Sprint, DISH possesses a strong tradition of innovation and industry leadership. We created the third largest pay-TV provider while competing with incumbent cable monopolies and other entrenched operators. DISH has consistently led our industry in service and technology delivery with award-winning innovations like Hopper® with Sling®. Our history of value creation is outstanding. Investors in our 1995 initial public offering have enjoyed a total return of 27 times their original investment, significantly outperforming the broader markets and our peers. We also have a proven track record of responsible capital management.
DISH has significant experience structuring and consummating strategic transactions and only needs to complete confirmatory due diligence, which we believe can be done quickly with your cooperation. We have examined your merger agreement with SoftBank and we would be prepared to execute a definitive merger agreement on substantially similar terms and conditions. Though not a condition of our proposal, we anticipate that the pending transaction with Clearwire would be completed. We are confident that we can obtain all necessary approvals within a reasonable timeframe.
We intend to fund the $17.3 billion cash portion of the transaction using $8.2 billion of our balance sheet cash and additional debt financing. We have a proven track record in raising capital to fund strategic initiatives and have received a Highly Confident Letter from our financial advisor, Barclays, confirming our ability to raise the required financing.
We would be pleased to discuss our plans for the combined company and we are available at any time to meet with the Sprint Board, management and advisors to answer any questions about our proposed merger. We are confident that the Sprint Board will share our view that this proposed merger offers an excellent opportunity for the equity holders of Sprint to realize a superior value for their shares that is unavailable to them under the SoftBank proposal.
While it would have been our preference to have confidential discussions regarding this proposed merger, your existing agreement with SoftBank and the impending deadlines associated with your shareholder vote, will compel us to confirm our intentions publicly. We look forward to hearing from you.
Very Truly Yours,
DISH Network Corporation
Charlie Ergen
Chairman