Dish Network Corp, the No. 2 U.S. satellite television provider, offered to buy Sprint Nextel Corp for $25.5 billion in cash and stock, a move that could thwart the proposed acquisition of Sprint by Japan's SoftBank Corp.
Dish's bid is the latest development in a shakeup of the U.S. wireless business, which is undergoing a wave of consolidation. Dish (Meridian, CO, USA) was already in the midst of an unsolicited offer for Clearwire Corp (Bellevue, WA, USA), the wireless company majority-owned by Sprint (Overland Park, KS, USA).
It was also the boldest step yet by Dish Chairman Charlie Ergen, who has bought billions of dollars worth of wireless spectrum in the last few years and has been seeking some sort of deal to make use of the airwaves.
Dish said on Monday it would pay $4.76 per share in cash and about 0.05953 shares in Dish stock for each Sprint share. The offer, which works out to $7.00 per share, represents a premium of roughly 12 percent to Sprint's close on Friday.
Dish claimed its offer represented a premium of roughly 13 percent to SoftBank's existing bid. Sprint shareholders would own 32 percent of the combined company.
"The offer from Dish appears credible since it has the financing lined up and can justify a higher price than SoftBank's offer because of the synergies with its existing operations in the U.S.," said Nick Brown, a telecommunications analyst with Espirito Santo investment bank.
Sprint, the No. 3 U.S. mobile services provider, agreed in October to sell 70 percent of its shares to SoftBank (Tokyo, Japan) for $20 billion. No date has been set yet for a vote on that deal.
Sprint declined to comment on the Dish offer. SoftBank could not immediately be reached for comment on Dish's bid.
Sprint shares were up 15.2 percent at $7.17 before the bell, above the offer price.
Dish dropped fell 1.7 percent to $37 before the bell.
NEEDS HELP COMPETING
On a conference call with analysts and investors on Monday, Dish said it could offer consumers immediate benefits, like bundled pricing for video, phone and Internet, and further access to unlimited data, if it were to combine with Sprint.
Dish also said it would be willing to honor Sprint's existing merger deal with Clearwire.
A source familiar with Dish's offer said Ergen's company saw buying Sprint outright as the best solution to Dish's wireless ambitions.
While Dish had already accumulated a sizable chunk of wireless spectrum, the play for Sprint came together in the last few months as Dish started to think through all of its alternatives to gain even more spectrum, the source said.
As much as Dish wants a wireless partner, analysts said Sprint also needs a deal to compete more effectively.
"There is a realization among the smaller players in the U.S. market that they need to merge or partner to compete against Verizon [New York City, NY, USA] and AT&T [Dallas, TX, USA], which are both so strong commercially and in terms of network quality," said Kester Mann, telecom analyst at consultancy CCS Insight.
Mann said while any deal would likely strengthen Sprint, Dish's spectrum assets would probably help support Sprint's pricing strategy, which includes unlimited mobile data access.
Wells Fargo analyst Jennifer Fritzsche said in a note that "Ergen and his team clearly bring a better financial offer" for Sprint shareholders.
But, Fritzsche wrote, Sprint management likely prefers the SoftBank offer, given the Japanese company's deeper background in the wireless market.
Barclays is serving as financial adviser to Dish. The satellite company said it intended to fund the bid with $8.2 billion in cash from its balance sheet as well as debt financing.
Earlier this month, Dish priced a debt offering of $2.3 billion, more than double what was planned.
In its letter to Sprint's board, Dish said it had received a "highly confident letter" from Barclays with regard to its financing.
In the letter, Dish suggested its offer was more compelling than the SoftBank bid because of the synergies: $11 billion in cost savings and the creation of a national provider of video, broadband and voice services.
"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," Dish Chairman Charlie Ergen wrote to Sprint Chairman James Hance.
(Additional reporting by Sruthi Ramakrishnan in Bangalore, Leila Abboud in Paris, Mari Saito in Tokyo and Liana B. Baker and Soyoung Kim in New York; Writing by Ben Berkowitz; Editing by Roshni Menon and Jeffrey Benkoe)