Softbank Corp. (9984) fell the most in six months in Tokyo trading after Dish Network Corp. (DISH) offered $25.5 billion for control of Sprint Nextel Corp. (S:US), sparking concerns the Japanese wireless carrier may raise its own bid.
Softbank, Japan’s third-largest mobile-phone company, fell 6.8 percent to 4,365 yen at the close of trade, the biggest drop since Oct. 12. The Tokyo-based company said it expects to complete its $20 billion agreed offer for Sprint by July 1, according to a statement on its website.
President Masayoshi Son would need to boost the cash portion of his offer for the No. 3 U.S. wireless carrier by as much as $2 billion to match Dish, Christopher Larsen, an analyst at Piper Jaffray & Co., said in a report. Softbank, which is targeting Sprint to expand overseas amid slowing domestic growth, faces a cut in its credit rating to junk after raising debt to finance the deal. The company hedged its bid by fixing the cost of dollars at 82.2 yen each, compared with today’s price of about 97.6 yen.
“Softbank is keen on buying Sprint and will probably raise its offer if the rival bidder doesn’t back down,” Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management Co. in Tokyo, said by phone today. “That could raise concerns there will be a new share sale.”
Overland Park, Kansas-based Sprint said its board will evaluate Dish’s offer, declining to comment further.
“Softbank believes that the agreed terms of our transaction with Sprint offer Sprint shareholders superior short and long term benefits to Dish’s highly conditional preliminary proposal,” the Japanese company said today.
Like the Softbank deal, Dish’s offer would give it control of 70 percent of Sprint. Sprint investors would get $7 a share, including $4.76 in cash, and a stake representing about 32 percent of the combined company, Englewood, Colorado-based Dish said.
While the offer is 13 percent above Sprint’s April 12 closing price, the stock climbed above $7 in New York trading, suggesting investors expect bidding to go higher. Sprint rose 14 percent yesterday to $7.06, the biggest one-day gain since the Softbank deal was announced. Dish (DISH) fell 2.3 percent to $36.77.
Dish’s bid represents the most aggressive move yet by billionaire Chairman Charlie Ergen to break into the wireless-phone market, letting him offer a bundle of television, Internet and mobile-phone services.
“There’s no one company on a national scale that puts it all together,” Ergen said during a conference call. “The new Dish/Sprint will do that.”
Ergen was already trying to disrupt a deal between Sprint and its wireless partner Clearwire Corp. (CLWR) 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 agreed to accept financing from the carrier.
Dish isn’t abandoning its offer for Clearwire, Ergen said yesterday. The merger offer isn’t contingent on a Clearwire deal with either Sprint or Dish, he said.
Dish’s bid is 8 percent to 11 percent better than Softbank’s, Larsen at Piper Jaffray estimated after including a break fee and a convertible bond held by Softbank.
Sprint would have to pay Softbank $600 million if it accepts a superior offer. In October, the Japanese carrier completed the purchase of $3.1 billion of convertible bonds than can be exchanged for more than 590 million Sprint shares.
Softbank may raise its bid, and it’s possible Dish’s price isn’t its best or final offer, Larsen said.
The Japanese company’s entire $20 billion bid is covered by yen forwards at 82.2 yen to the dollar, Son said Jan. 31. The yen has dropped to the lowest since 2009 as the government seeks to end two decades of stagnation and meet a 2 percent inflation goal.
Softbank has raised offer prices on acquisitions before and may boost its bid to $7.50 a share or more, Kevin Smithen, an analyst at Macquarie Group Ltd., wrote in a note yesterday.
A successful bid by Dish would scuttle Son’s plan to add U.S. operations. Son said in October he targeted Sprint because it has the ability to challenge Verizon Wireless and AT&T Inc. (T:US)’s dominance of the U.S. mobile-phone industry. The 55-year-old’s goal is to create the largest mobile-services provider in the world by revenue, surpassing Verizon and China Mobile Ltd.
Son’s ambitions have made him Japan’s second-richest man, with a fortune estimated at $11.8 billion, according to the Bloomberg Billionaires Index. He owns stakes in Yahoo Japan Corp., Alibaba Group Holding Ltd. and Zynga Inc., and in his biggest deal bought Vodafone Group Plc’s mobile-phone business in Japan in 2006.
His deals also made Softbank the country’s most-indebted phone company. Standard & Poor’s and Moody’s Investors Service have put the Japanese company’s credit ratings under review for possible downgrade on concern the Sprint acquisition may undermine its financial strength. A downgrade of one step would bring the rating to a speculative, or junk, ranking at Moody’s.
Softbank said in December it secured a bridge loan of as much as 1.65 trillion yen ($17 billion) to finance the acquisition. The company lowered the maximum amount last month to 1.28 trillion yen, after it raised 370 billion yen selling bonds, according to data compiled by Bloomberg.
Son has said he wants to raise Softbank’s market value to 200 trillion yen by 2040, compared with about 5.2 trillion yen now. The company has surged 39 percent in Tokyo trading this year.
Softbank doubled third-quarter profit from a year earlier as it lured customers with Apple Inc. smartphones and tablet computers. Net income rose to 65.9 billion yen in the three months ended December 31 from 32.8 billion yen a year earlier, Softbank said Jan. 31.
Dish is trying to acquire a larger company in terms of market value, sales and number of users. Sprint has more than 47 million mobile-phone customers, while Dish has about 14 million satellite-TV subscribers.
Ergen, 60, has faced slowing growth in the satellite-TV market, prompting him to seek new sources of revenue.
“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.”
Dish has accumulated $10 billion in cash, partly by selling bonds over the past year, giving it the ability to expand into the wireless industry. The 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 served as financial adviser to Dish.
“Given the current capital market environment, you can get cheap capital for a good story,” Jayant said.
A Dish-Sprint merger will result in $11 billion of cost synergies, Tom Cullen, a Dish executive vice president, said during the conference call. That includes a 3.3 percent reduction in costs in the first year. Duplications in marketing, retention organizations and call centers would lead to some of the savings, Cullen said.
The combined company will have an estimated $40 billion in debt, said Philip Cusick, an analyst at JPMorgan Chase & Co. in New York. Still, the long-term synergies and cash generation make the idea “very compelling,” he said.
“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,” Cusick, who has a neutral rating on Dish, said in a report.
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