Sprint Nextel Corp. (S) has completed its acquisition by Japan's Softbank Corp. (TYO:9984), just days after Sprint completed its acquisition of Clearwire Corp. (CLWR). The deal -- which gives shareholders $16.6B USD in cash ($7.65 USD per share) and gives Sprint $5B USD -- was finalized after an approval by the U.S. Federal Communications Commission (FCC) and a silent approval by the U.S. Department of Justice (DOJ) who let the deadline to sue to block the acquisition slip by.
I. A Big Win for Softbank, a Crushing Defeat for Dish
Both approvals sound bitter notes for media mogul Charlie Ergen, President, founder, and CEO of DISH Network Corp. (DISH).
The drama regarding the acquisition of America's third largest carrier began last October when Softbank offered $20B USD for a 70 percent stake in Sprint, giving $12.1B USD in cash ($5.25 USD per Sprint Share) to shareholders and the rest to Sprint for capital spending.
The Softbank deal seemed attractive on more levels than just the cash -- Softbank had a history of working with troubled acquisitions, having turned around the struggling Japanese wing of Vodafone Group Plc (LON:VOD), whom it purchased from the UK carrier. That success doubled Softbank's profits and propelled it to third place in the Japanese market. Softbank also had a history of aggressively pursuing coveted handsets, having been the first Japanese carrier to sell Apple, Inc.'s (AAPL) iPhone.
The Softbank deal was approved by shareholders and looked ready for prime time when a shocker arrived.
Charlie Ergen (Dish/Echostar) and Masayoshi Son (Softbank) both serve as joint chairman and CEOs of their firms. Both have a penchant for driving a hard deal. And both hate to lose.
[Image Source: Sawyer Speaks (left); Bloomberg (right)]
Mr. Ergen surprised shareholders with a late bid of $4.76 USD in cash per Sprint share, plus ~0.05953 DISH shares per Sprint share (@ a price of ~$36.77 USD, so an extra $2.19 USD per share) for a total of about $6.95 USD in value per Sprint share ($10.6B USD in total cash). In total DISH wanted a 68 percent stake in Sprint, slightly less than Softbank. Additionally, DISH offered $14.6B USD in funding to Sprint, for a total bid of $25.2B USD.
Some top players in the tech industry expressed doubts, though, about the synergy of a Sprint + DISH union.
Softbank founder and CEO Masayoshi Son -- known as a fierce negotiator -- countered with aforementioned $21.6B USD offer package, which set the cash payout to shareholders at the aforementioned $7.65B USD per share ($16.6B USD in cash) for an 78 percent stake. Additionally Mr. Masayoshi drove home the point that the combined carrier would be able to collectively negotiate cheaper "bulk" deals for telecommunications equipment, an approach that was expected to save the combined company roughly $3B USD per year.
Softbank CEO Masayoshi Son (left) and Sprint CEO Dan Hesse [Image Source: Kyoto Newscom]
Now Softbank was offering both more cash and better synergy -- shareholders quickly said "aye" to the deal.
II. Clearwire is Key to Sprint's LTE Future
But additional drama emerged when Mr. Ergen tried to outbid Sprint for Clearwire -- a wireless broadband firm and spectrum holder who Sprint had sunk a lot of debt spending into.
For a time it appeared that Mr. Ergen would get a minority ownership in Clearwire and Softbank would get Sprint. This would create a dangerous situation for Sprint, as Mr. Ergen's deal, while cash-rich, was allegedly designed to loot Clearwire and profit if it went bankrupt.
But Sprint caught a break when on June 20 it begrudgingly agreed to bump its acquisition offer to $5 USD per share of Clearwire -- versus a maximum offer of $4.40 USD per share from DISH. That offer was approved at a special July 9 Clearwire shareholders meeting. The deal allows Sprint to repurpose Clearwire's largely unused U.S. spectrum, particularly the valuable 2.5 GHz band holdings. Experts expect that it will take Sprint around 18 months to fully build out to use these airwaves.
Sprint outbid DISH in the eleventh hour to purchase Clearwire. [Image Source: TNW]
The Sprint acquisition is arguably good news for consumers as it eliminates the risk that the debt-riddled carrier might go bankrupt. In that regard its similar to Deutsche Telekom AG's (ETR:DTE) partial acquisition of MetroPCS Communications Inc. (PCS) acquisition and merger into T-Mobile USA, a move which arguably saved the cash-strapped fourth place carrier. With T-Mpbile USA showing promising signs of life at long last, post merger, Sprint and Softbank are surely hoping to follow in suit in months to come.
A big question looking ahead is whether Mr. Ergen will opt to launch a fifth major U.S. cellular carrier. Mr. Ergen holds a large pool of spectrum -- on par with the holdings of T-Mobile or Sprint, at least -- but has been stymied in his efforts to purchase a carrier to serve as a pre-made vehicle for that spectrum. Ultimately Mr. Ergen may be forced to start his own carrier if he wants in on the market, building it from the ground up as he did with DISH.
Sources: Sprint ,