Dish Network Corp., the satellite media company controlled by Charlie Ergen, made an unsolicited $25.5 billion offer on Monday for Sprint Nextel Corp., topping a Softbank Corp. bid for the third-largest U.S. wireless carrier.
Sprint investors would get seven dollars a share, including four dollars and seventy-six cents in cash, and a stake representing about 32 percent of the combined company, Englewood, Colorado-based Dish said Monday. While the offer is 13 percent above Sprint’s April 12 closing price, the stock climbed above seven dollars a share in New York trading Monday, suggesting that investors expect the bidding to go higher.
The bid represents the most aggressive move made yet by Ergen, in his quest to break into the wireless-phone market, letting him offer a bundle that includes internet, mobile phone and other services. Acquiring Sprint would mean outdueling Softbank, Japan’s third-biggest wireless operator, which agreed in October to pay $20 billion for the same 70 percent stake in the carrier.
“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.”
Shares of Overland Park, Kansas-based Sprint climbed 14 percent to seven dollars and six cents, the biggest one-day gain since the Softbank deal was announced. Like the Softbank deal, Dish’s offer would give it control of 70 percent of the company. Dish’s stock fell 2.3 percent to $36.77.
Ergen, a combative billionaire who serves as Dish’s chairman, was already trying to disrupt a deal between Sprint and its wireless partner Clearwire Corp. Dish bid three dollars and thirty cents a share for Clearwire’s outstanding stock, topping the two dollars and ninety-seven cents price offered by Sprint. Dish was facing an uphill fight in that deal, since 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 Monday. Monday’s merger offer isn’t contingent on a Clearwire deal with either Sprint or Dish, he claimed.
Sprint said its board will evaluate the Dish offer, declining to comment further. Takeaki Nukii, a spokesman for Tokyo-based Softbank, wasn’t immediately available for comment.
Ergen, 60, has faced slowing growth in the satellite 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. “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 a war chest to expand into the wireless industry. Even so, the Sprint offer is ambitious. It 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 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 would result in $11 billion worth 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 would have an estimated $40 billion in debt, a heavy load, 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.
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, the fourth-largest U.S. carrier, is closing in on a merger with MetroPCS Communications, which is number five in the industry. Deutsche Telekom, 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 purchased 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.
In addition to offering phone service, Ergen would use Sprint to create a high-speed broadband network that would let customers view media inside and outside the home.
“This would be a transformative deal for Dish, opening up the broadband business that Chairman Ergen has discussed many times,” Cusick 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.”