Dish Network makes $25.5B bid for Sprint

Roger Yu, USA TODAY | USATODAY

Dish Network said Monday that it wants to buy Sprint Nextel for $25.5 billion, pitting its offer against one already on the table from Japanese wireless carrier Softbank.

One of the largest acquisition proposals this year, Dish's bid attests to the value of wireless airwaves, or spectrum, that Sprint holds and the anticipated growth of mobile data usage in the U.S.

Dish is offering Sprint shareholders $17.3 billion in cash and $8.2 billion in stock. Sprint shareholders would receive the equivalent of $7 per share, based on Dish's closing price on Friday -- $4.76 per share in cash and 0.05953 Dish shares for each Sprint share. Dish says its proposal "represents a 13% premium to the value of the existing SoftBank proposal."

Sprint said in a statement only that it had received Dish's offer and that its board of directors "will evaluate this proposal carefully and consistent with its fiduciary and legal duties." Shares of Sprint Nextel rose 13.5% to end Monday at $7.06. Dish fell 2.3% to $36.77.

Softbank revealed its surprising bid to enter the U.S. market in October with an offer of $20 billion for a 70% stake in Sprint. U.S. regulators still are reviewing the proposal, which would give Softbank a foothold in the valuable U.S. market and provide Sprint with a deep-pocketed partner to expand its coverage of a faster data network called 4G LTE.

"The Dish proposal clearly presents Sprint shareholders with a superior alternative to the pending SoftBank proposal," says Dish Network Chairman Charlie Ergen, who has been eager to strike deals in the wireless industry.

Dish's interest in merging with the third-largest wireless carrier in the U.S. stems from a desire to broaden its offerings beyond the satellite TV business, whose growth prospects are seen as limited as more consumers move to the Internet for entertainment. Dish had 14 million pay-TV subscribers at the end of 2012, vs. 13.9 million a year earlier.

Ergen says the merger would enable Dish to offer consumers bundles that include voice, broadband data and video that can be played at home -- or on the wireless network when they leave the house.

"Ergen is a disruptive force in the telecom and TV industry," says Roger Entner, a telecom analyst at Recon Analytics. "He needs to have a partner in the wireless world to make his investment in his wireless spectrum worthwhile. Dish is desperately looking for a deal."

With the wireless industry quickly consolidating, Dish made a $2.2 billion offer in January to buy Clearwire, a wireless carrier half-owned by Sprint Nextel. It also considered buying MetroPCS, which subsequently agreed to merge with T-Mobile USA.

Sprint and Clearwire jointly own the largest amount of spectrum in the U.S., an enviable position for telecom giants that want to grow in the wireless business. An acquirer of Sprint would be in the driver's seat to control Clearwire's spectrum.

Dish already owns some spectrum that could be used to expand the combined company's wireless coverage if the deal is successful. "The combined national footprints and scale will allow Dish/Sprint to bring improved broadband services to millions of homes with inferior or no access to competitive broadband services," Ergen says.

Dish's move further underscores the blurring line between TV video platforms and mobile devices, says Phillip Redman, an analyst at Gartner. Dish's rivals are no longer just other cable or satellite TV providers, as wireless carriers invest heavily in their LTE networks for video streaming. "They're competing against Verizon and AT&T, and they need to be able to broaden their offerings," Redman says. "A lot of consumers are mobile first in many ways."

While Dish is smaller than Sprint in revenue, Dish has a lot of cash on hand. According to Bloomberg, Dish has accumulated about $10 billion in cash, the most among U.S. television and phone providers. Dish estimates that the merger would result in about $11 billion in cost savings, and plans to fund the $17.3 billion cash portion of the transaction with $8.2 billion of its cash, plus debt.

Dish's bid likely will prompt Softbank to sweeten its offer, Entner says. In pitching to buy Sprint, the Japanese carrier said that its deep pockets and experience building fast-data networks and in competing with larger rivals would serve Sprint well.