Dish Makes $25.5B Offer For Sprint

Deal Would Trump Existing Agreement With SoftBank

Charlie Ergen finally answered all the speculation surrounding his recent moves to acquire giant piles of cash on Monday, launching an unsolicited $25.5 billion bid for wireless giant Sprint Nextel.

In a statement issued early Monday morning, Dish said it would offer $7 per share in cash and stock for the third largest wireless player in the U.S., consisting of $4.76 in cash and stock (0.059 Dish shares per Sprint share) representing about 32% in the combined company.

According to Dish, the deal will consist of $17.3 billion in cash and $8.2 billion in stock. Dish said it will fund the cash portion of the deal with $8.2 billion of cash on hand and additional debt financing. Barclays is serviing as financial advisor to Dish.

The deal would appear to trump an earlier $20.1 billion agreement by Sprint to combine with Japanese wireless giant SoftBank.

“The Dish proposal clearly presents Sprint shareholders with a superior alternative to the pending SoftBank proposal,” said Dish chairman Charlie Ergen in a statement. “Sprint shareholders will benefit from a higher price with more cash while also creating the opportunity to participate more meaningfully in a combined Dish/Sprint with a significantly-enhanced strategic position and substantial synergies that are not attainable through the pending SoftBank proposal.”

Dish has accumulated a cash hoard of about $10 billion over the past several months which has fueled speculation about Ergen’s ultimate intentions. Last Friday, speculation was high that Ergen may try to go after Deutsche Telekom’s T-Mobile USA subsidiary.

But Ergen apparently had even loftier ambitions. Sprint is the third largest wireless carrier in the country – behind Verizon wireless and AT&T – with more than 55 million customers. It’s nationwide network would quickly and easily solve Dish’s plans for its own broadband play.

 “A transformative Dish/Sprint merger will create the only company that can offer customers a convenient, fully-integrated, nationwide bundle of in- and out-of-home video, broadband and voice services,” Ergen said in a statement. “Additionally, 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. This unique, combined company will have a leadership position in video, data and voice and the necessary broadband spectrum to provide customers with rich content everywhere, all the time.”

The proposed combination will result in synergies and growth opportunities estimated at $37 billion in net present value, including an estimated $11 billion in cost savings.

Earlier this year Dish made an attempt to acquire Clearwire, of which Sprint is the largest shareholder, in a $5 billion deal, but the company has made little progress on that front.

According to reports, if Dish were successful it would have to pay a $600 million breakup fee to SoftBank, which the satellite giant said it would be willing to do.

Dish will hold a conference call concerning its proposal at 8 a.m.

The FCC is in day 136 of its review of the proposed merger of SoftBank and Sprint, which includes the transfer of Sprint's recently purchased spectrum from cable consortium Clearwire.

DISH had asked the FCC to stop the clock on the merger given that it was making a counter offer for Sprint, but the FCC so far has let the clock run, though it has made no decision.

In a letter dated Jan. 28, Jennifer Rockoff, an adviser to Justice's National Security Division, asked the commission to defer any action until the FBI and the Department of Homeland Security, as well as DOJ, have completed their review of issues including national security and public safety. But that appeared to be more pro forma than a signal of unusual concern. DOJ sent almost the identical letter to the FCC when it was reviewing the T-Mobile/MetroPCS deal, which was ultimately approved.

It's hard to predict whether a DISH/Sprint deal would make it more or less likely to pass muster with the FCC.

Since either could create competition to AT&T and Verizon, the FCC might tend to look favorably on both.

But Matt DelNero, a media lawyer with Covington & Burling in Washington who has worked on wireless spectrum deals, says there are issues.

"Softbank/Sprint is a somewhat easier case since it does not involve merger of existing spectrum holdings," he says. "On the other hand, DISH is a U.S. entity and presumably would not trigger the level of national security review that Softbank is currently undergoing.”  --John Eggerton contributed to this story.