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May 29, 2013

Sprint’s SoftBank deal clears national security review

Approval by the Committee on Foreign Investment in the United States gets the $20.1 billion deal closer to a July consummation. Clearance included a deal to let the U.S. government approve a “security director” who would be a member of Sprint’s board.

Tokyo-based SoftBank Corp. has received U.S. national security clearance for its plan to buy 70 percent of Sprint Nextel Corp., the companies announced Wednesday.

Approval from the Committee on Foreign Investment in the United States clears a major hurdle in the $20.1 billion deal for America’s No. 3 wireless phone company.

To win approval, SoftBank and Sprint agreed to give the U.S. government a say in specific parts of their business after the proposed merger. The government authority would extend to Clearwire as well, assuming Sprint completes its planned purchase of full control over its wireless partner.

Clearwire shareholders vote Friday on Sprint’s offer to buy the roughly 49 percent of Clearwire it doesn’t already own.

Some shareholders continue to fight against that deal, although Sprint recently raised the price it is paying. Clearwire’s shares closed Wednesday at $3.48, higher than Sprint’s recently sweetened bid of $3.40 a share. Sprint closed at $7.28, up 1 cent.

A yes vote from Clearwire may be the last big hurdle the SoftBank-Sprint deal faces, said Jeffrey Silva, telecommunications analyst at Medley Global Advisors. He said the other remaining steps to a completed deal are ready to fall into place.

Approval from the Federal Communications Commission, which is reviewing the deal’s impact on the public interest, may be only days away, Silva said. And Sprint shareholders are likely to approve the deal at their scheduled June 12 vote.

“There’s no more signoffs needed,” Silva said.

Terms of the security clearance granted by the government were spelled out in a network security agreement, according to the companies.

Specifically, it gives the U.S. government power to approve a key director at Sprint and set that director’s qualifications, according to a filing Sprint made to the Securities and Exchange Commission.

Sprint’s “security director” would have to be a U.S. citizen, have “expertise in and experience” in national security matters and hold “appropriate security clearances,” the SEC filing said. The director would be the government’s contact person on security issues at the merged companies.

SoftBank and Sprint also agreed to remove some equipment currently used by Clearwire by the end of 2016, the SEC filing said, though it did not specify which equipment. Published reports say SoftBank has agreed to remove equipment made by China-based Huawei Technologies from Clearwire’s network.

Previously, Huawei and China-based ZTE Corp. were targets of a U.S. House Intelligence Committee warning. The committee raised concerns that the companies’ equipment could open U.S. telecommunications networks to abuse capable of harming the economy or security.

SoftBank and Sprint’s security agreement gives the government approval power over “certain network equipment vendors and managed services providers” of Sprint and Clearwire after the merger, the SEC filing said.

The companies’ announcement said the approval means there are “no unresolved national security issues” related to the merger.

It also said that an additional review body of federal agencies, including the Department of Justice and the Department of Homeland Security, called Team Telecom, is expected to clear the transaction as well.

Dish Network Corp., a satellite television company, provides the one other wild card in Sprint’s future. Sprint’s board continues to negotiate with Dish over its rival $25.5 billion bid for all of Sprint, even as the board endorses the SoftBank agreement.

Silva said that if the board were likely to declare Dish’s offer superior to SoftBank’s, “they would have done so by now.”

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