Dish Network Corp. (DISH)’s merger talks with Sprint Nextel Corp. (S) collapsed after a series of disagreements, including Sprint demanding a $3 billion reverse-breakup fee, people familiar with the matter said, leaving the satellite-TV company with just a week to regroup and try again.
Dish had countered with a $1 billion reverse-breakup fee, which would be paid if the takeover didn’t win regulatory approval, said one of the people, who asked not to be identified because the discussions were private. Sprint announced this week that Dish failed to produce an “actionable” bid, leading the carrier to endorse a sweetened $21.6 billion offer from SoftBank Corp. (9984), which originally agreed to acquire Sprint in October.
Dish, the satellite-TV provider controlled by billionaire Charlie Ergen, now faces a June 18 deadline to submit what Sprint has described as a “best and final” fully financed counteroffer. Dish said this week that it continues to view Sprint as holding “tremendous value” and is considering its strategic options.
Dish’s failure to show committed financing and to make a definitive merger proposal concerned Sprint, according to a person familiar with the negotiations. Dish, on the other hand, was frustrated by what it perceived as Sprint’s slowness to deliver documents necessary to conduct due diligence and complete an offer, other people said.
As part of the new agreement with SoftBank, Sprint plans to adopt a shareholder-rights plan -- also known as a poison pill -- that will make it more difficult for Dish or other suitors to make unsolicited bids in the future.
Sprint asked for a high reverse-breakup fee out of concern the deal would drag on for many more months before getting approved, one person said. Sprint and SoftBank expect to be able to complete their transaction by early July. SoftBank has agreed to pay a reverse breakup fee of $600 million if the deal falls apart, according to filings.
“The Sprint board wants a reverse-breakup fee from Dish that is five times what it got from SoftBank,” he said. “That tells you something about whom the Sprint board likes and doesn’t like.”
Sprint also told Dish it anticipated it would take a year for a Dish merger to close, two of the people said. Dish estimated it would be closer to four months, they said.
Dish and its advisers met for several hours on June 7 with Sprint’s board and its Bank of America Corp. advisers in order to produce a final offer, one of the people said.
Dish was waiting on more documents from Sprint and was told it had several more days to put in its bid, the person said. The company didn’t know the Softbank bid was coming, according to the person.
Sprint is the third-largest U.S. wireless carrier, behind Verizon Wireless and AT&T Inc. (T) SoftBank, based in Tokyo, plans to use Sprint to expand into North America. Ergen, meanwhile, wants to add Sprint’s wireless services to his company’s satellite-TV offerings.
Institutional Shareholder Services Inc., the biggest shareholder-advisory firm, recommended SoftBank’s earlier bid in a report this month, saying the deal would supply Sprint with the cash it needs to upgrade its network and compete with larger carriers.
ISS, based in Rockville, Maryland, reiterated its endorsement of SoftBank’s offer in a follow-up report.
“Sprint noted that its special committee has ended discussions with Dish,” the firm said. “As terms have improved, and no firm competing bids are currently available to shareholders, ISS continues to recommend shareholders vote for the transaction.”