Dish Network Corp., the satellite-TV company controlled by Charlie Ergen, made an unsolicited $25.5 billion offer for Sprint Nextel Corp., topping a Softbank Corp. bid for the third-largest U.S. wireless carrier.
Sprint investors would get $7 a share, including $4.76 in cash, a stake representing about 32 percent of the combined company, Englewood, Colorado-based Dish said today. While the offer is 13 percent above Sprint's April 12 closing price, the stock climbed above $7 in New York trading today, suggesting that investors expect the bidding to go higher.
The bid represents that most aggressive move yet by Ergen to break into the wireless-phone market, part of his strategy to decrease reliance on the slowing satellite industry. Acquiring Sprint would mean outdueling Softbank, Japan's third-biggest mobile-phone operator, which agreed in October to pay $20 billion for a 70 percent stake in the carrier.
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"He is trying to transform his own business," said Vijay Jayant, an analyst at International Strategy & Investment Group in New York who has a buy rating on Dish shares. "He's trying to reinvent himself, moving from satellite to wireless."
Shares of Overland Park, Kansas-based Sprint climbed as much as 18 percent to $7.33, the biggest intraday gain since the Softbank deal was announced. Dish's stock fell 4.7 percent to $35.87 as of 9:49 a.m. in New York.
Dish has accumulated $10 billion in cash, partly by selling bonds over the past year, giving it a war chest to expand into the wireless industry. The Sprint offer consists of $8.2 billion in stock and $17.3 billion in cash, signaling that Ergen is able to borrow money inexpensively, Jayant said. Barclays Plc is acting as financial adviser to Dish.
"Given the current capital market environment, you can get cheap capital for a good story," Jayant said.
Bill White, a spokesman for Sprint, declined to comment on Dish's proposal. Takeaki Nukii, a spokesman for Tokyo-based Softbank, wasn't immediately available for comment.
"The next question is the response from the Sprint board and whether Softbank comes back with another bid, potentially using its balance sheet advantage with more cash," Philip Cusick, an analyst at JPMorgan Chase & Co. in New York, said today in a report. He has a neutral rating on Dish.
Merger Mania
Dish's offer extends a frenzy of consolidation for the U.S. wireless industry. Smaller carriers are seeking out merger partners to help wage a stronger attack against the two dominant competitors, Verizon Communications Inc. and AT&T Inc.
T-Mobile USA Inc., the fourth-largest U.S. carrier, is closing in on a merger with MetroPCS Communications Inc., which is No. 5 in the industry. Deutsche Telekom AG, T-Mobile's parent company, sweetened its offer for MetroPCS last week in order to get reluctant investors to agree to the terms.
Sprint, flush with the promise of Softbank's money, has been making its own deals. The company bought airwaves from U.S. Cellular Corp., giving it more spectrum in the Midwest, and it's attempting to buy out the remaining shares in its wireless- network partner Clearwire Corp.
Ergen, a combative billionaire who serves as Dish's chairman, was already trying to disrupt the Sprint-Clearwire deal. Dish bid $3.30 a share for Clearwire's outstanding stock, topping the $2.97 price offered by Sprint. Dish was facing an uphill fight in that deal because Sprint owns more than 50 percent of Clearwire and the takeover target has already agreed to accept financing from the carrier.
Ergen also informally approached Deutsche Telekom about buying its T-Mobile division, people close to the situation said last week. And Dish held earlier talks with MetroPCS, before that company agreed to its merger with T-Mobile in October, according to people with knowledge of the discussions.
Gaining a wireless carrier would let Dish bundle mobile-phone offerings with its satellite-TV service, which ranks second in customers to DirecTV. The company has acquired radio spectrum licenses, purchased from bankrupt TerreStar Networks Inc. and DBSD North America Inc., but Ergen has said he doesn't want to build his own wireless network.
Sprint would solve that problem, Ergen said today.
"There's no one company on a national scale that puts it all together," he said on a conference call. "The new Dish/Sprint will do that."
Ergen could use Sprint to create a high-speed broadband network that would let customers watch television inside and outside the home, Cusick said in his report.
"This would be a transformative deal for Dish, opening up the broadband business that Chairman Ergen has discussed many times," he said. "When combined with Dish's satellite video offer and Sprint's mobile voice network, this could create a very compelling competitor to AT&T and Verizon as well as cable companies long term."
Bloomberg News
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