Sprint Connection

Dish chairman pitches hard for his bid to buy Sprint

Updated: 2013-04-17T03:14:46Z

By MARK DAVIS and DIANE STAFFORD

The Kansas City Star

Charlie Ergen, the aggressive deal-making chairman of Dish Network Corp., took his fight for Sprint Nextel Corp. to its shareholders, its hometown and the public on Tuesday.

The move came one day after Ergen offered $25.5 billion to acquire Sprint in hopes of overpowering a $20 billion deal Sprint struck with Tokyo-based SoftBank Corp. in October but has not completed.

Ergen, in an interview with The Star, portrayed the battle as a “Japanese company” against an “American entrepreneur startup.”

He said he had “politely knocked” on Sprint’s door with a superior bid and Sprint, given time, would see it that way, too.

Earlier in the day, SoftBank issued a statement discounting the Dish bid. SoftBank’s offer is to buy 70 percent of Sprint, leaving current shareholders with the other 30 percent.

SoftBank labeled the late-breaking bid from Dish, a satellite television company, a “highly conditional preliminary” proposal. Its offer, SoftBank said, provides Sprint superior benefits in the short term and long term. It expects to complete its deal, as is, July 1.

SoftBank didn’t raise its offer for Sprint, though it may reconsider should Sprint’s board decide the Dish deal is better.

Overland Park-based Sprint, the nation’s third-largest wireless phone company, would be Dish’s entry into the wireless industry.

Ergen told The Star that he saw Kansas City as the place to manage the wireless operations his Colorado-based company hoped to acquire. It’s better than a “far-away country,” he said.

SoftBank, though, has said it would keep Sprint’s headquarters and management team here.

Ergen also offered the prospect of a job for anyone willing to work for the merged companies, amid his own claims that a merger would allow billions of dollars in cost savings.

Elsewhere, Ergen defended the amount of debt Dish would take on to buy Sprint.

“In today’s market, at today’s rates, it’s certainly not excessive leverage,” Ergen, who is Dish’s largest shareholder, told the Associated Press. “I have the most to lose. I’ve obviously thought about this.”

In Dish’s vision, merging the two companies — each trailing larger rivals in its own industry — would create an industry-transforming offer to consumers: low-priced mobile phone service and television viewing wherever they go.

“It’s pretty ballsy,” Scott Schermerhorn of Granite Investment Advisors Inc. told Bloomberg News. “This is big. Once this deal is done, you’re going to own a wireless company that, oh, by the way, happens to have a satellite-TV division to it.”

SoftBank, the third largest Japanese wireless company, has pitched its planned investment in Sprint as turning the distant No. 3 in the U.S. market into a vibrant challenger for the largest carriers, Verizon and AT&T.

Analysts split on which of the two offers for Sprint is best, some preferring SoftBank’s plans, others Dish’s.

One said that the bidding probably would continue.

“It’s so important strategically for both SoftBank and Dish that it’s highly likely that you’ll see SoftBank either match or top” Dish’s offer,” MKM Partners strategist Keith Moore told Bloomberg. “I think Dish expects that to happen,” so its executives “probably haven’t put their best foot forward either.”

Shares of Sprint and Dish each gained ground in trading Tuesday. Sprint shares added 14 cents, or 2 percent, and closed at $7.20. Dish gained $1.16, or 3 percent, closing at $37.93.

Here is an edited transcript of The Star’s interview with Ergen:

Q: Have you heard from Sprint?

Yes. They said that they were in receipt of our offer and that they’re going to evaluate it and get back to us. And that they’re appreciative of the offer.

Q: One of the biggest questions for Sprint employees is their future in terms of maintaining a headquarters in Kansas City. Can you comment?

The new Dish/Sprint is a great combination and gives Sprint and Dish the greatest chance of success in the marketplace going forward.

I would say for Sprint to continue to be successful and build on what the management team has done over the last five years, that has to be managed in Kansas City. I don’t think you can manage that business from a far-away country.

The United States is a very interesting market where the Sprint management has the best expertise. Obviously, we’re not holding ourselves out as experts in the wireless business.

If there are people outside Sprint and Dish that can help us, we want to use their expertise — vendors and others.

Q: Would it require some cutbacks in employment?

I don’t want to sound like we’re getting ahead of ourselves. Right now we just have an offer into the board and obviously we believe it is far superior to the SoftBank offer.

To the extent that we ultimately prevail, I think it is safe to say that anybody who wants to help Dish/Sprint to be No. 1 in this industry, they’re going to have a job.

Obviously, to the extent we’re successful and we grow these companies, were going to have more jobs. In 1980, at Dish, we had three employees. Today we have 25,000.

We did that by prudent management. We took some risks from time to time. We worked hard. We stayed focused. We stayed disciplined, and we played to win. When you do that in combination with Dish/Sprint you’re going to grow employment.

Q. Sprint is a huge corporate citizen here, with the Sprint Arena and contributions to all kinds of civic projects. Can you describe Dish’s philosophy as a corporate citizen in a metro area?

I think it’s important to be a corporate citizen. Obviously, Dish is on a nationwide basis not maybe as dependent on one geographic area as Sprint would be, and we certainly haven’t been the size of Sprint.

It’s important to encourage your employees to be good corporate citizens. Certainly we do that.

But our focus also is to be good stewards to our shareholders and our employees, and we focus on that as well.

Q. You’ve used Dish/Sprint several times. Is that going to be the name?

If you come up with something better, let me know.

Q. SoftBank’s offer injects $8 billion into Sprint, and $3 billion is in Sprint’s hands. Would you need to repay the $3 billion and inject $8 billion of your own?

The $3 billion doesn’t need to be paid back today. Obviously, if you compare the offers, SoftBank is coming in with $4.9 billion in new money; we’d be coming in with about $2 billion of new money and a billion and a half dollars in free cash flow (a year) that Dish has been generating over the last several years.

In addition, we have quite a bit of synergies, both in possible business synergies and in things we share, things like call centers, marketing, advertising. Sprint has retail stores where we don’t have to build our own retail stores. So there’s a lot of synergies, the first year over $1 billion in savings. By year three, we actually provide a lot more cash to Sprint than Softbank’s offer.

Q. How do you interpret SoftBank’s note to proceed as is?

You’d have to ask them. All I can say is our offer we believe is superior. It’s 19 percent more cash (for Sprint shareholders), a 13 percent premium in total to the SoftBank offer. And I think any shareholder that looks at this will prefer to own 32 percent of Dish/Sprint as opposed to 30 percent of Sprint as it is today.

Q. Will this deal dilute your ownership in Dish?

It would dilute my ownership for sure. Obviously, the final structure of this particular deal is going to be in conjunction with the Sprint board. I hope you don’t have us coming across as though we’ve consummated this deal. We’re politely knocking on the door of the Sprint management team and Sprint board and saying we have a superior offer and we’d like you to evaluate it and we hope you see the same things we see.

They just saw it yesterday so it’s going to take a while to evaluate it.

It’s interesting, from a human nature point view and certainly from an employee point of view. You’ve got a Japanese company on one hand and an American entrepreneur startup on the other hand. It makes for an interesting dynamic, and it’ll be an interesting story.

To reach Mark Davis, call 816-234-4372 or send email to mdavis@kcstar.com. To reach Diane Stafford, call 816-234-4359 or send email to stafford@kcstar.com.

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