The Tokyo-based company seeking control of Sprint Nextel Corp. has agreed to appoint a U.S. government-approved “security director” to the wireless phone company’s board to address national security concerns.
By MARK DAVIS
The Kansas City Star
SoftBank Corp. made the unusual commitment to several federal agencies, including the U.S. Department of Defense and Department of Homeland Security, as it presses for federal approval of its agreement to buy 70 percent of Sprint for $20.1 billion.
Sprint separately is weighing a competing offer from satellite television company Dish Network Corp., which wants to buy all of Sprint for $25.5 billion.
The review of SoftBank’s deal comes amid growing federal concerns about cybersecurity generally and in the telecommunications industry specifically.
A U.S. House Intelligence Committee report last year publicly cautioned U.S. companies to avoid using equipment made by two China-based companies — Huawei Technologies Inc. and ZTE Corp. — because of national security concerns.
Government worries include the possibility that the Chinese government could, through China-based vendors, install malicious hardware or software in U.S. networks to damage the economy by disrupting or monitoring communications.
“We’re in new territory with regard to cybersecurity,” said Jeffrey Silva, a telecommunications policy analyst at Medley Global Advisors.
Silva said letting the government approve a specific board member goes beyond “run of the mill” conditions on corporate mergers. More often companies agree to sell parts of the merging companies that overlap to preserve competition in the industry or make other changes at the time of the merger.
SoftBank’s acceptance of the government role in naming one of Sprint’s directors also demonstrates its strong desire to get a deal done.
“They’re willing to jump through whatever hoops the government puts up,” said Jeff Kagan, a technology industry analyst.
Kagan also said that SoftBank’s agreement on the director showed it took the government’s security concerns seriously.
The government’s role in selecting the security director on Sprint’s board will be spelled out in a Network Security Agreement that the companies and federal government expect to reach as part of the approval process.
Such agreements are part of the government’s special oversight of the telecommunications industry because of its central role in the U.S. economy.
SoftBank has publicly pledged to remove Huawei equipment currently used in the wireless network of Sprint’s longtime network partner Clearwire Corp. Sprint is trying to acquire full control of Clearwire as part of its deal with SoftBank.
Sprint disclosed the security director agreement in a long May 1 filing with the Securities and Exchange Commission.
It said Sprint and SoftBank would “address certain national security considerations in connection with the merger” under the Network Security Agreement.
Furthermore, it said one of the directors named by SoftBank would be “subject to U.S. government approval,” specifically designated as “security director.”
SoftBank and Sprint would be able to remove the security director from Sprint’s board only under terms the agreement would set, the filing said.
Dish Network, in competing to buy Sprint, has challenged SoftBank’s ownership of a U.S. telecom company. It said Thursday that SoftBank’s efforts “do not adequately protect our national security interests.”
SoftBank spokesman Paul Kranhold said Dish had not pledged to remove the questioned Huawei-made equipment at Clearwire, making it unfair for Dish to criticize SoftBank.
SoftBank also has used some Huawei and ZTE equipment in Japan, as well as core network equipment from other manufacturers such as Alcatel-Lucent and Ericsson AB.
The Sprint deal with SoftBank faces review by the U.S. Committee on Foreign Investment specifically because the buyer is based in Japan. The committee is a collection of officials from various federal agencies.
Verizon is about 45 percent owned by Britain-based Vodaphone Group, and T-Mobile USA, which recently merged with MetroPCS, is owned by Germany-based Deutsche Telekom.
The Sprint deal faces additional scrutiny by another set of federal agencies, called Telecom Team, because of issues specific to the telecommunications industry.
Sprint said Thursday that 23 states that have chosen to review the SoftBank deal have given approval, including the California Public Utilities Commission, which voted Thursday.
Sprint shares gained 1 cent and closed at $7.31 Thursday.
Washington rarely gets involved in who can serve as a director of a specific company.
The U.S. Treasury appointed some of the directors of General Motors Co. and some banks under the bailout programs in which federal money helped those companies during the financial crisis.
Ralph A. Ward, publisher of Boardroominsider.com, said the government had required some companies to appoint directors with specific expertise or as caretakers as a condition in settling court cases brought against the companies.
Bloomberg News contributed to this article.
To reach Mark Davis, call 816-234-4372 or send email to firstname.lastname@example.org.