Dish makes offer for Sprint

In a fun turn of events for technology reporters and Wall Street, Dish Network decided to put together a $25.5 billion bid for Sprint Nextel, offering a competing bid to Japanese Softbank’s.

Here are some of the details from the New York Times:

The pay-TV operator Dish Network said on Monday that it had submitted a $25.5 billion bid for Sprint Nextel.

The move is an attempt to scupper the planned takeover of Sprint Nextel by the Japanese telecommunications company SoftBank, which agreed in October to acquire a 70 percent stake in the American cellphone operator in a complex deal worth about $20 billion.

Dish Network thinks it can do better. Under the terms of its proposed bid, Dish Network said it was offering a cash-and-stock deal worth about 13 percent more than SoftBank’s bid.

Dish Network values its offer at $7 a share, including $4.76 in cash and the remainder in its shares. The offer is 12.5 percent above Sprint Nextel’s closing share price on Friday.

“The Dish proposal clearly presents Sprint shareholders with a superior alternative to the pending SoftBank proposal,” said Charles W. Ergen, Dish Network’s chairman.

Mr. Ergen said a “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.”

The Wall Street Journal put the latest move by Dish into great context in this piece:

The unsolicited offer is Mr. Ergen’s most audacious attempt yet to move from the slow-growing pay-television business into the fast-evolving wireless industry. The satellite TV pioneer eased into the industry by amassing spectrum and winning approval from regulators last year to use it to offer land-based mobile-phone service. But he lacks much of the rest of the operation, including a cellphone network, which would be costly and time-consuming to build.

Combining his company with Sprint would allow Dish to offer video, high-speed Internet and voice service across the country in one package whether people are at home or out and about, Mr. Ergen said. People who don’t have access to broadband from a cable company would be able to sign up for Internet service delivered wirelessly from Sprint cellphone towers to an antenna installed on their roof, Mr. Ergen said.

Taking over Sprint would be a big bite. The wireless carrier booked $35.3 billion in revenue last year, compared with $14.3 billion for Dish. The combined company would carry more than $36 billion in debt, according to CapitalIQ, even before loading on the $9 billion Dish indicated it would borrow to do the deal.

Dish said it would be able to execute a definitive merger agreement after reviewing Sprint’s books. The satellite company said it is being advised by Barclays, which is confident it can raise the funding.

Earlier this year, Dish made an informal offer to buy Clearwire Corp. —a wireless carrier that is half-owned by Sprint and that has agreed to sell Sprint the other half. Dish has yet to move forward with a formal bid.

Mr. Ergen said the “deck was stacked against us” with Clearwire due to a tangle of contractual obligations. With Sprint, the only obstacle is a $600 million breakup fee that would be due Softbank. He said he is willing to pay that.

Bloomberg Businessweek wrote a frequently asked questions piece, which offered this info on regulatory and David Einhorn’s position in Sprint:

Are there regulatory issues?
Probably not. Given the power of Verizon (VZ) andAT&T (T), analysts don’t expect a Dish, Sprint tie-up to hit anti-trust hurdles. On the contrary, Dish says the deal would be particularly good news for rural consumers who don’t have access to traditional broadband. If there’s anything FCC commissioners like, it’s rural consumers.

How about that David Einhorn? 
Right? Einhorn’s Greenlight Capital snapped up a bunch of Sprint shares as the company swooned in recent years. At the end of the first quarter last year, when Sprint shares were wallowing below $3, Greenlight had 68 million of them.

The Bloomberg wire story quoted an analyst as saying the deal had some merits despite the heavy debt load the potential company might hold:

The combined company will have an estimated $40 billion in debt, a heavy load, said Philip Cusick, an analyst at JPMorgan Chase & Co. in New York. Still, the long-term synergies and cash generation make the idea “very compelling,” he said.

“The next question is the response from the Sprint board and whether Softbank comes back with another bid, potentially using its balance sheet advantage with more cash,” Cusick, who has a neutral rating on Dish, said in a report.

Dish’s offer extends a frenzy of consolidation for the U.S. wireless industry. Smaller carriers are seeking out merger partners to help wage a stronger attack against the two dominant competitors, Verizon Communications Inc. and AT&T Inc.

T-Mobile USA Inc., the fourth-largest U.S. carrier, is closing in on a merger with MetroPCS Communications Inc. (PSC), which is No. 5 in the industry. Deutsche Telekom AG (DTE), T-Mobile’s parent company, sweetened its offer for MetroPCS last week in order to get reluctant investors to agree to the terms.

It’s going to be interesting to see which deal the Sprint board selects and what reasons they offer for their choice. Dish obviously has grand ambitions and sees some part of Sprint playing into its plans. But does the Sprint board agree? Only time will tell.