SoftBank Said to Give U.S. Veto Power Over Sprint Board Seat
SoftBank Corp. (9984) will let the U.S. government have veto power over one nominee to Sprint Nextel Corp. (S)’s board to ease security concerns if its $20.1 billion takeover bid succeeds, a person familiar with the matter said.
The government-approved director will monitor national-security issues relating to SoftBank’s takeover of the third-largest U.S. wireless carrier, said the person, who asked not to be named because the negotiations are private. Mitsuhiro Kurano, a spokesman for Tokyo-based SoftBank, declined to comment.
SoftBank also has pledged not to integrate equipment from Huawei Technologies Co. into Sprint’s network because of U.S. lawmakers’ concerns the Chinese company could aid intelligence agencies. The SoftBank deal is being reviewed by the Federal Communications Commission, the U.S. Justice Department and the inter-agency Committee on Foreign Investment that checks for security implications of foreign purchases of U.S. companies.
The issue has provided ammunition to Dish Network Corp. (DISH), the satellite-TV provider that made a $25.5 billion counterbid for Sprint last month. Dish said today that the steps SoftBank is taking “do not adequately protect our national security interests.” As a U.S. company, Dish wouldn’t face the same review from the Committee on Foreign Investment in the United States, or CFIUS.
“If the news reports are accurate, SoftBank’s agreement to an extraordinary board structure and the concerns of CFIUS with respect to the use of Chinese-manufactured equipment on a foreign-controlled Clearwire network, which reportedly could add as much as $1 billion to the cost of the proposed SoftBank-Sprint transaction, confirm the serious national security risks of SoftBank acquiring Sprint,” Stanton Dodge, Dish’s executive vice president and general counsel, said in a statement.
Sprint agreed to SoftBank’s takeover plan in October, forging a deal that would give the Japanese company a 70 percent stake. The Overland Park, Kansas-based carrier continues to recommend the SoftBank transaction, even as it opens up its books to Dish. Sprint said this month that it would give private financial data to the satellite company, letting Dish build a case for its competing bid.
SoftBank’s bid got a momentum boost today after California’s Public Utilities Commission signed off on its Sprint transaction, giving the deal the final state approval it needed. The process of 23 state reviews took seven months.
“Dish, on the other hand, has not even begun the regulatory process,” Ron Fisher, president of SoftBank Holdings Inc., said in a statement.
Sprint shares were little changed at $7.31 at the close in New York. The stock has climbed 29 percent this year, putting it above the per-share price offered by SoftBank and Dish, a sign investors expect a bidding war to ensue.
The use of Huawei equipment became a bigger issue after a House Intelligence Committee report last year urged U.S. companies to steer clear of Huawei and ZTE Corp. (000063), citing concerns that the Chinese government could install malicious hardware or software in U.S. telecommunications networks. Sprint owns more than 50 percent of Clearwire Corp., which uses Huawei gear, and is in the process of trying to acquire the rest of the business. After the takeover, Sprint would absorb Clearwire’s assets and have to address the Huawei question.
SoftBank, Japan’s third-largest wireless carrier, has said it will remove the Huawei equipment from Clearwire’s system. In its home country, SoftBank uses base band units and antenna systems from Huawei and ZTE for its fourth-generation mobile network. Alcatel-Lucent and Ericsson AB provide the core network.
Dish hasn’t said how it would handle the existing Huawei gear in Clearwire’s network, making it unfair for the satellite provider to criticize SoftBank, said Paul Kranhold, a U.S.-based spokesman for the Japanese company. SoftBank also disclosed in February that the CFIUS review may affect who is on the new Sprint board, so the idea of giving the government veto power over a nominee shouldn’t be a surprise, he said.
“Only SoftBank has publicly committed to removing equipment already located inside a U.S. network that the government has national security concerns about,” Kranhold said. “SoftBank’s proposal, therefore, enhances U.S. national security. Dish has made no such commitment to remove this network equipment and to do so would require Dish to further increase the amount of debt it will need to complete any transaction.”
The Wall Street Journal reported earlier on SoftBank’s plan to allow government approval of a board member.