Sprint Nextel Corp. (S:US), weighing a $25.5 billion bid from Dish Network Corp. (DISH:US), is holding off on granting its suitor access to its books because of questions over funding and cost savings, said people familiar with the matter.
Dish has pressed Sprint directors to rule that its bid may be superior to the one from SoftBank Corp. (9984) that Sprint accepted last year, said the people, who asked not to be named since the process is private. That would pave the way for Dish to begin reviewing Sprint’s confidential financial data and projections (S:US), a step the satellite-TV company wants to take before lining up an estimated $9.3 billion in financing, they said.
The board is concerned about Dish’s ability to obtain the financing as well as the debt that would be placed on the merged company, said one of the people. It also has doubts about Dish’s estimate of $11 billion in cost savings as the two companies reduce overlap in marketing staff and other business units, the person said. Sprint has already made reductions in those areas and doesn’t see much fat left to cut, according to the person.
The board’s concerns create more hurdles for Dish Chairman Charlie Ergen, who’s challenging SoftBank for control of the third-largest U.S. wireless carrier to bolster his pay-TV empire with mobile capability. The two sides have already gone back and forth at least once, and Dish has complained to some Sprint investors (S:US) that the directors are delaying their ruling because management prefers SoftBank’s bid, said one of the people.
Ergen and his advisers expected a decision from Sprint’s directors (S:US) by now, said one of the people. The board hasn’t decided whether Dish’s offer could top SoftBank’s, and no decision is expected soon, said another person.
“We remain confident Sprint shareholders are going to accept the offer from the company that brings the most to the table, including the best price and strategic plan,” said Bob Toevs, a spokesman for Dish. He declined to elaborate. Scott Sloat, a spokesman for Overland Park, Kansas-based Sprint, declined to comment on the status of the review.
The directors began pressing Dish for more details within days of its April 15 offer, the people said. They sent a letter to Dish saying the bid needed fixes before Sprint could compare it with SoftBank’s, said people familiar with the matter.
The letter, which was from a special committee of the board, highlighted the lack of committed financing, said the people. The board also raised questions over Dish’s business and financial projections, the expense-reduction numbers, timing to close the deal and whether the merger would survive regulatory scrutiny, said the people.
Confidence in Numbers
In response, Dish told the board it was confident in its cost-savings projections because the two parties had discussed a combination in the past, providing insight into Sprint’s operations, one person said. At the time Ergen announced his bid for Dish, he predicted that the deal might generate as much as $24 billion in “new opportunity synergies,” on top of the planned $11 billion in savings.
SoftBank said yesterday that Dish’s synergy claims are inflated. Citing a report from Franklin Court Partners LLC, the company said it would be harder for Dish to find cost savings in part because the two merger partners would be so dissimilar. Dish also didn’t account for integration expenses, which could be $2.5 billion to $3.5 billion, the report found.
As for how to pay for the deal, Dish has said that it won’t be able or willing to provide committed financing until it’s allowed to conduct due diligence, the person familiar with the matter said. Dish so far has a letter from financial adviser Barclays Plc saying the bank is confident it can help raise the necessary financing.
Ergen met with some larger Sprint shareholders in late April and told them he felt the questions from Sprint’s board had been appropriately answered by his financial advisers, said another person familiar with the matter.
Dish should already be involved with its due diligence work at this point, said Gerard Hallaren, an analyst with Janco Partners Inc.
“I suspect Sprint favors the SoftBank bid since it’s safer and keeps more of their people in power,” said Hallaren. “But it is not necessarily the best offer for shareholders.”
A dearth of committed financing isn’t always an obstacle to negotiations. Dell Inc. (DELL:US), the personal-computer maker in the midst of a buyout by its founder and Silver Lake Management LLC, agreed to let counterbidder Blackstone Group LP examine its books before obtaining committed funds. Blackstone withdrew the offer April 18, citing concerns about the worsening global PC market.
Dish Treasurer Jason Kiser said in April that the deal may require more than $9 billion in new funding, with most coming from Sprint. Dish is offering $4.76 in cash and 0.05953 of a Dish share for each Sprint share, making the bid worth about $7.12 a share as of today’s close.
Dish fell 2.9 percent to $39.61 at the close in New York. The shares have gained 8.8 percent this year. Sprint, up 29 percent in 2013, rose 1.4 percent to $7.32, suggesting that investors expect either SoftBank or Dish to raise its bid.
Sprint disclosed April 22 that its board formed a special committee to evaluate Englewood, Colorado-based Dish’s offer. The group, which consists of Larry Glasscock, James Hance, Janet Hill, William Nuti and Rodney O’Neal, is receiving financial advice from Bank of America Corp. and legal counsel from Shearman & Sterling LLP.
The group is comparing Dish’s proposal with that of Tokyo-based SoftBank, which offered about $20.1 billion for a majority stake in Sprint on Oct. 15. That deal would provide Sprint with $8 billion in new capital, according to a statement at the time.
Taking control of Sprint would give the Japanese company a foothold in a market that’s still growing, compared with its home country, where handset shipments have shrunk. SoftBank has argued that its bid has “superior short- and long-term benefits” compared with Dish.
The Dish offer has helped make the telecommunications industry the most active for deals in 2013, with more than $80 billion in proposed transactions, according to data compiled by Bloomberg. Dish also made a bid in January for Clearwire Corp., which had earlier agreed to be bought out by controlling shareholder Sprint. Clearwire’s board urged shareholders this week to vote in favor of Sprint’s deal.
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