Months after the announcement of Softbank's (OTCPK:SFTBF) $20B acquisition offer forSprint Nextel (NYSE:S), the bidding war is heating up with Dish Network's (NASDAQ:DISH) $25.5B offering. DISH's deal will form a unique combination of pay-TV and wireless if it goes through. Ultimately, however, it is the valuation proposition that will matter. The final winner should be the one that provides Sprint the most long-term value, which would be to allow Sprint to compete in the rapid developing 4G LTE market.
Below is a comparison table for the deals from Dish and Softbank:
Sprint and Dish can combine spectrum rights
Install antennas for wireless broadband
Softbank has a stronger financial backing
Reduce cost by combining call centers and back-end functions; could result in $11B of cost synergies, including a 3.3 percent reduction in expenses the first year.
Clearwire's 2.5GHz spectrum is uniquely positioned to be used as a global LTE band, provided a certain band configuration is used.
Dish will pay for $600M penalty fee for Sprint to break up Softbank's deal
Expected to complete by mid-2013
Clearwire (CLWR) deal
With Dish's own $5.15B for Clearwire, Sprint buyout bid is not contingent on Clearwire part
For Sprint, its own bid for Clearwire is contingent on the Softbank deal, as Sprint needs funding
To counter offer, Softbank may need to boost cash portion of its bid to at least $7.50 a share from $7.30, as indicated by Amy Yong and Kevin Smithen, analysts at Macquarie in New York. Keith Moore, an event-driven strategist at MKM Partners LLC in New York, also stated:
It's so important strategically for both Softbank and Dish that it's highly likely that you'll see Softbank either match or top it.
However, from the financial perspective, Softbank has an edge with its $11B of cash (and equivalents) and investment-grade credit rating, while Dish has a junk rating after raising more money in debt market, according to Bloomberg's compiled data.
TD-LTE, the Future
While Clearwire intended to use the 2.5GHz spectrum assets for a capacity-based TD-LTE network, its spectrum was codified in the 3GPP as band class 41, a TDD band that covers the entire frequency range. Currently, Softbank's has a TD-LTE network operating on band 41 in Japan. Things could really change if China Mobile starts ordering dual-band TD-LTE devices that work for both its band 40 TD-LTE trial network and Clearwire's future band 41 network.
The bidding war may boost the short-term share price for Sprint. However, in the long-term, Sprint's true value can only be fully unlocked if it can successfully compete in the 4G market. The best outcome would be to have Softbank sweeten the deal and move on to expand on the 4G end expeditiously.
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