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Sprint -Softbank Make Position Clear: Go Ahead With Merger, Weigh DISH With Prejudice

|Includes:DISH Network Corporation (DISH), S, S

Sprint and Softbank, responding to a request by DISH Networks to the FCC yesterday, April 18, 2013, to place the Softbank-Sprint merger agreement in abeyance (delay proceedings), issued a joint letter to the FCC asking for the review process, now scheduled to reach conclusion on or around July 1st, 2013, to continue on schedule, saying that "The Commission must not be distracted by Dish's latest maneuverings," Sprint said in a document addressed to the FCC.

Sprint said that the continued proceeding with the FCC review would "...in no way limit Dish's ability to make competing bids for Sprint, nor does it prejudice in any way Dish's ability to challenge SoftBank's valuation of Sprint."

Our Interpretation in Light of the Course of Developments:

As mentioned in previously posted articles, their are several factors which lead us to believe that the Sprint BOD and management would discount the value of DISH's offer. To summaries, these are:

  • DISH's proposal has increased risk due to heavy reliance on unproven market developments for triple-quadruple play voice, broadband, video on demand, and TV multicast services.
  • The accumulated debt and future exposure due to new market risks is higher than is the case with Softbank-Sprint.
  • Synergistic benefits may be overstated and, in any case, are speculative
  • Time to consider the proposal comes late in the FCC-DOJ review process and is unsolicited and can be considered unwelcome (even though not characterized as such by Sprint).

While the letter asks to continue the process while saying that this does not distract Sprint's BOD from considering the DISH proposal, the indication is in line with expectations that Sprint views the DISH offer as more speculative and conditional than Softbank's.

We have expected objections, offers for spectrum, collaboration, or M&A because the Softbank-Sprint merger threatens the competitive status quo. From a strategic time-line perspective, Sprint-Softbank are primarily correct in asserting that the process should continue. While not put forward, the parties seem to infer, as we think is the case, that DISH's effort is at least partly to derail and delay a chief competitor from moving ahead with what is likely to look like, once detailed plans are announced, as a significant new competitive threat.

DISH's alternative strategy objective may well be to try to force an agreement between their company and the Softbank-Sprint 'Starburst II' entity that will become New Sprint post merger. We think that much of the risks of debt leverage over extension, need for rapid uptake of technology, and push into new markets might be reduced to significant benefit if difficulties of M&A or collaboration agreements are overcome.

It looks increasingly doubtful DISH will succeed in acquiring Sprint. This letter to the FCC is not blocking but sends a clear message of where the combined Softbank, Sprint and Clearwire think the process is taking them.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: DISH, S, S