Dish Network Corp. (DISH) passed on making a new offer for Sprint Nextel Corp. (S) by the mobile-phone carrier’s deadline last night, clearing the way for SoftBank Corp (9984). to acquire the wireless company.
Sprint’s actions “have made it impracticable for Dish to submit a revised offer by the June 18th deadline,” Englewood, Colorado-based Dish said in a statement yesterday. “We will consider our options with respect to Sprint” while focusing on a separate offer for a stake in Clearwire Corp. (CLWR), Dish said.
Dish’s $4.40-a-share offer for Clearwire gives the second-largest U.S. satellite TV provider one more chance to insinuate itself into Sprint’s plans. Tokyo-based Softbank, meanwhile, is closer to making the U.S. entry it first proposed back in October, when it offered to acquire control of Sprint and invest in its network to create a new mobile-phone powerhouse.
“Sprint, with likely new controlling owner SoftBank, is entering a period of heavy capital investment, customer retention spending and substantial negative free cash flow,” Kevin Smithen, an analyst at Macquarie Securities in New York, said today in a research note. “We are recommending that investors take profit in Sprint as attention shifts from M&A back to fundamentals,” He downgraded the shares to neutral from outperform.
Sprint slid 4.4 percent to $7 at the close in New York, its biggest one-day decline in more than eight months. Dish gained 0.5 percent to $39.27, and Clearwire jumped 3.1 percent to $4.70. SoftBank rose 4.2 percent to 5,460 yen in Tokyo.
Roni Singleton, a spokeswoman for Overland Park, Kansas-based Sprint, declined to comment on Dish’s decision.
If Dish had made a superior offer by the deadline, Sprint’s board could have terminated its merger agreement with SoftBank, according to a filing from Sprint. The board no longer has the power to break off the SoftBank merger if Dish makes an offer, according to the filing.
Dish could get another opening for a bid if Sprint shareholders vote to reject SoftBank’s proposal at next week’s meeting.
“This is a step closer for SoftBank to buy Sprint. It’s positive,” said Tomoaki Kawasaki, a Tokyo-based analyst at Iwai Cosmo Holdings Inc. (8707)
Sprint, the third-largest U.S. carrier, initially agreed to the SoftBank takeover in October. SoftBank raised its bid from $20.1 billion on June 10, trying to ward off a $25.5 billion offer from Dish.
While the total dollar value of Dish’s deal was higher than the new bid, Sprint faulted the satellite-TV company for not putting forward a proposal that was final and “actionable.” It then set a June 18 deadline for Dish to respond and imposed a poison-pill amendment to prevent hostile takeovers in the future.
“Sprint is clearly desperate to move on and close the deal with SoftBank,” said Jan Dawson, an analyst at the New York office of London-based Ovum. “The deadline was really about trying to close off this other avenue and move forward with SoftBank.”
Dish began its takeover fight for Sprint in April, part of an effort to expand into mobile-phone services. Charlie Ergen, the billionaire who co-founded and controls the company, wants to be able to bundle his satellite-TV offerings with Sprint’s wireless plans.
The move disrupted a takeover agreement that SoftBank forged with Sprint after friendly negotiations. SoftBank Chief Executive Officer Masayoshi Son sees Sprint as the linchpin of a global expansion.
“I am determined to be No. 1 in the world very soon in my industry,” Son said in a speech last week.
Dish, meanwhile, is sparring with Sprint in a separate takeover battle over control of Clearwire, the mobile-phone carrier’s wireless-network partner.
Sprint, which owns slightly more than half of Clearwire, has been attempting to buy the remaining stake since December, prodded on by SoftBank. The deal would give the carrier access to Clearwire’s valuable wireless airwaves, letting Sprint bolster its own network.
In January, Dish stepped in with a counteroffer for Clearwire that Sprint later topped. Dish then bid $4.40 a share for Clearwire, one dollar a share more than Sprint’s latest offer, in a transaction that values the total company at about $6.5 billion. Clearwire’s board recommended that investors support Dish’s deal last week, spurning its own parent company.
Sprint responded by suing Dish to block the transaction, saying the deal would violate the law and Clearwire’s equity holders’ agreement.
Bob Toevs, a Dish spokesman, said earlier that Sprint’s suit is a “transparent attempt to divert attention from its failure to deal fairly with Clearwire’s shareholders,” blocking them from getting a fair price for their shares.
Acquiring Clearwire is a key part of SoftBank’s strategy for Sprint. That means investors may want to know its fate before they decide on the SoftBank takeover, said Kevin Roe, an analyst at Roe Equity Research in Dorset, Vermont.
“SoftBank needs to obtain the frequency bands of Clearwire to do business in the U.S.” said Yoshihiro Okumura, a general manager at Chiba-Gin Asset Management Co. in Tokyo. “SoftBank still has a lot to worry about.”
Dish’s declaration yesterday that it has “options” for Sprint also leaves the door open for a subsequent move. One avenue for Ergen is to flout Sprint’s deadline and make an offer later, said Michael Mahoney, senior managing director of Falcon Point Capital LLC in San Francisco.
“He could do something to make the vote fail,” said Mahoney, who doesn’t hold shares in either company. “They could say, ‘Before you investors vote on this, be aware that I am going to bring a better offer.’”
Dish may also consider legal alternatives, Mahoney said. Last week, Dish complained to the U.S. Federal Communications Commission about SoftBank’s bid, saying it should revisit whether the offer meets the public interest.
“We look forward to receipt of the FCC and shareholder approvals, which will allow us to close in early July and begin the hard work of building the new Sprint into a meaningful third competitor in the U.S. market,” SoftBank said in an e-mailed statement.
Clearwire’s board has recommended that its shareholders vote against Sprint’s offer in a June 24 meeting. The following day, Sprint investors are scheduled to vote on SoftBank’s offer.
Dish’s tender for Clearwire shares expires July 2. Unless Sprint reschedules its meeting, its investors will be voting on the SoftBank transaction without knowing whether Dish acquired a significant stake in Clearwire.
“Sprint shareholders need to have a Clearwire deal resolution before voting on the SoftBank offer,” Roe said. “Otherwise, investors don’t really know what the new SoftBank/Sprint will look like financially or strategically.”
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