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Lawsuit seeks to delay Sprint vote on SoftBank deal

Updated: 2013-06-25T15:34:23Z

By MARK DAVIS

The Kansas City Star

Unhappy shareholders of Sprint Nextel Corp. hope to persuade a Kansas judge Friday to delay next week’s vote on the $20.1 billion deal with SoftBank Corp.

Their request for a delay is part of a larger complaint that the deal is unfair for Sprint’s shareholders, attorneys for the shareholders said.

They also seek court-ordered changes that essentially would reopen bidding for control of Sprint. Besides the SoftBank merger, Sprint also is negotiating terms of a rival bid by satellite television company Dish Network Corp. It seeks to buy all of Sprint for $25.5 billion.

“I think we have a very strong chance. The law is on our side,” said Mike Barry, a Wilmington, Del., attorney representing various shareholders, including the City of Dearborn Heights, Mich., whose pension fund owns Sprint stock.

To get a court-ordered delay to the vote in the form of a temporary injuction, the shareholders will have to show the judge that they’re likely to win their case and that the harm they suffer would be irreparable if the deal proceeds.

In an email Wednesday, Sprint spokesman John Taylor said, “We continue to believe that the plaintiff’s argument is without merit and does not demonstrate that the law or facts support any need for intervention by the court.”

All Sprint shareholders are set to vote Wednesday on the deal that would give Tokyo-based SoftBank 70 percent ownership of the Overland Park-based wireless phone company.

The companies agreed to the deal in October, have gotten clearance under a U.S. national security review, and await word from the Federal Communications Commission in addition to approval from Sprint’s shareholders.

A report Tuesday quoted sources saying Sprint was considering delaying the vote to give Dish time to turn its preliminary bid into a binding offer that Sprint’s board could formally evaluate.

Court records show, however, that Sprint has fought the shareholders’ request for a delay to the vote since the request was made in March.

The one-page filing asked Johnson County District Judge Thomas M. Sutherland to “issue a temporary injunction that enjoins the shareholder vote and consummation of the proposed acquisition of Sprint by SoftBank Corp.”

Other court documents in which the two sides’ attorneys have argued their cases have been sealed. The shareholders’ attorneys said it keeps them from discussing details of their case against the deal and the scheduled vote.

“We believe that both the process and the price ultimately achieved is unfair to shareholders,” said Randy Baron, a San Diego attorney representing shareholders.

In broad terms, Baron and Barry said the deal Sprint reached with SoftBank put other potential bidders at a $1.2 billion disadvantage in trying to match or beat the offer. And that hole discouraged potential bidders to the detriment of Sprint’s shareholders.

Specifically, the SoftBank deal included $3.1 billion in bonds that SoftBank bought from Sprint to infuse cash into the U.S. carrier immediately.

Instead of getting repaid $3.1 billion, SoftBank will convert those bonds into new shares of Sprint when it completes its deal. It also will buy most but not all of the shares from existing Sprint shareholders, giving SoftBank about 70 percent of Sprint’s shares.

The suing shareholders’ complaint about the bond has to do with the number of shares SoftBank gets for its $3.1 billion. It will get 590 new Sprint shares, which amounts to a price tag of $5.25 a share even though the total deal is worth almost $7 for each Sprint share.

Barry said any another bidder would have to pay full price for SoftBank’s 590 million new shares though SoftBank will be out only $5.25 each.

It makes a Sprint buyout that much more expensive for other bidders than for SoftBank, he said.

Furthermore, that $1.2 billion difference is money that another bidder won’t be able to offer existing shareholders for their shares, he said.

Barry said delaying the vote would give the court time to review and strike down other features of the SoftBank deal that he said worked against current shareholders. Doing so would allow potential rival bidders to compete for Sprint on equal footing with SoftBank, he said.

A similar lawsuit in federal court also sought a delay to next week’s vote, but the judge has stayed action in the case pending the outcome of the state court case.

In the federal complaint, shareholders’ attorneys argued that SoftBank got favorable terms to buy Sprint “by exploiting the friendship” between Sprint’s chief executive Dan Hesse and SoftBank founder and chief executive Masayoshi Son.

Their “close-knit relationship” began in 2000 when Hesse led a company called TeraBeam Networks LLC in which SoftBank was the largest owner, the suit said.

Taylor’s email said of the federal lawsuit, “The claim is without merit and is just a sample of the frivolous and baseless points made by the plaintiff in this case.”

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

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