Is Dish Putting The Sprint-Softbank Merger In Jeopardy?

Includes: DISH, S
by: Trefis

DISH Network (NASDAQ:DISH) has requested the Federal Communications Commission (FCC) to put on hold its merger review of Sprint (NYSE:S) and Softbank, until there is clarity on the outcome of Clearwire bidding process. Markets expected Sprint to close the merger with Softbank and then proceed to acquire the remaining 50% stake in Clearwire (CLWR). However, DISH joined the race earlier this month, beating Sprint’s offer by $500 million coupled with a $2.2 billion offer for 24% of Clearwire’s spectrum. (see How Much Pain Can Dish’s Clearwire Bid Inflict On Sprint?) Given this new development, Sprint investors are bound to be nervous until there is clarity if the Softbank-Sprint merger will go through.

In October 2012, Sprint announced a 70% stake sale of the company to Japanese telco Softbank. The complex $20 billion agreement allows Softbank to purchase 55% of Sprint at $7.30 per share and infuse a total of $8 billion in cash at $5.25 per share in two separate transactions. Sprint has already received $3.1 billion in convertible debt as part of the deal and the rest of the cash transaction is supposed to happen after regulatory approval.

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DISH’s Reasoning For FCC Intervention

DISH argues that Sprint’s ability to close the Clearwire acquisition is entirely dependent on the Softbank merger. According to DISH’s FCC filing, “contingencies make SoftBank’s and Sprint’s applications unripe for consideration.” Without the cash infusion from Softbank, Sprint wouldn’t be in a financial position to close on Clearwire. Hence DISH wants the Sprint-Softbank merger to be put on hold until there is clarity on the Clearwire bidding process. While it is hard to predict how the FCC will rule, we do think this is the first shot by DISH in what could be a long and messy court battle for Clearwire. Either party can appeal the FCC decision in a Federal Appeals Court, but we don’t think Sprint would want to go to court, especially since the Softbank merger is very important for its growth plans and any legal proceedings would put a halt on its plans. In a tightly contested wireless market, Sprint is already fighting for market share and the loss of the capital infusion from Softbank could be detrimental to the company’s survival.

Could Set Table For Partnership

By filing the motion with the FCC, DISH could be trying to force Sprint to come to the negotiating table to discuss a partnership agreement surrounding Clearwire and its spectrum. DISH needs Clearwire’s spectrum as it readies plans to launch its wireless services, and the last thing Sprint needs is the Softbank merger being moved to the back burner as DISH pursues its plans to win over Clearwire’s institutional investors. Any delay in the Softbank capital infusion could impact Sprint’s 4G LTE rollout and network modernization plan, which could cause the company to lose market share to AT&T (NYSE:T) and Verizon (NYSE:VZ). DISH likely knows this, and could be using this motion as a ploy to compel Sprint to make a deal.

Any response from the FCC will probably come after January 28, the deadline for public responses on the Softbank merger.

Disclosure: No positions