The path to Sprint Nextel’s future has become bumpier since $3 billion was diverted Monday from its game plan to be acquired by SoftBank Corp.
The money, which now would go to shareholders instead of to Sprint, has sparked rival Dish Network’s challenge in the U.S. government’s review of Sprint’s deal with the Tokyo-based company. And, according to one analyst, it also may impede Sprint’s ability to keep bidding to acquire wireless network partner Clearwire Corp.
The $3 billion belongs to SoftBank, which is battling with Dish to buy control of Sprint, the No. 3 wireless carrier in the U.S. SoftBank, which is No. 3 in Japan, raised its bid for Sprint on Monday to top the bid from Dish, the satellite television company.
But in raising its bid, SoftBank cut $3 billion out of the $8 billion it had vowed last October to invest in making Overland Park-based Sprint a stronger competitor against Verizon, AT&T and T-Mobile.
SoftBank is using the $3 billion to sweeten its offer to Sprint shareholders as it seeks to buy 78 percent of their company under the new deal. Sprint still stands to get $5 billion, but it received most of that last fall as a sort of early investment from SoftBank.
Dish seized on the change in SoftBank’s plans and complained Wednesday to the Federal Communications Commission.
The FCC is reviewing SoftBank’s proposed deal with Sprint for its benefit to the public interest. It had been expected to approval the original SoftBank deal, which it has reviewed for several months.
In a letter to the FCC, Dish said the $3 billion shift “significantly changes” SoftBank’s deal and should force it to undergo additional government review.
Additional FCC review would erode one SoftBank advantage over Dish’s bid for Sprint. If shareholders sell to SoftBank, as things stand now, they will get their money quickly, barring any added FCC review the change triggers. Selling to Dish would force a long wait because its plan has yet to go before the FCC.
Dish, in its letter, said the $8 billion was key to SoftBank’s argument that its deal is in the public’s interest, for example by improving wireless service from Sprint.
“SoftBank has now gone back on its promise,” the letter said.
SoftBank fired back with its own letter to the FCC that said Dish is “simply wrong.”
The money is only part of the public interest benefit in the deal, the company’s letter said. SoftBank also brings experience in the network upgrade work Sprint is doing as well as in “tailoring service plans and devices to meet consumer needs.” Each would provide better public service.
Combined, SoftBank and Sprint also would have enough customers to negotiate better prices when buying network equipment together and gain access to new technology quicker. The letter counts each as benefiting the public interest through better service.
In announcing their new deal, the companies said added investment and operating cost savings had turned up since they began working together last fall, making the $5 billion total sufficient to do what Sprint needed to do.
Analysts, however, have noted that less cash for Sprint means it will have to run more on debt financing.
Dave Novosel, a bond analyst at Gimmie Credit in New York, said he doubts SoftBank and Sprint could deliver enough savings to offset the $3 billion cutback under the new deal. Sprint probably ends up borrowing the money anyway, he said.
More debt, Novosel went on to say, could be a factor in Sprint’s decision about whether to keep bidding to buy Clearwire, which has valuable untapped wireless spectrum.
Clearwire’s board had been recommending that its shareholders take up Sprint’s offer of $3.40 a share for the 49 percent of Clearwire that Sprint doesn’t already own. On Wednesday, the board reversed its advice.
It recommended that shareholders vote against the Sprint merger and instead sell their shares directly to Dish, which is offering to buy them at $4.40.
Sprint has not said what it plans next.
Clearwire, however, said in a public filing Wednesday that it tried to get a better deal from Sprint before turning to the Dish offer.
The filing said that “despite multiple efforts to negotiate with Sprint, Sprint had not provided any offer to adjust the terms and conditions” of its merger agreement.
Novosel said a higher bid would force more borrowing at Sprint and leave it more financially leveraged than it might want to be when taking on the competitors.
“Sprint may well decide to boost its offer,” he wrote in a note to clients, “but given the recently raised bid by SoftBank for Sprint, leverage may be a constraining factor.”