An Auction of Sprint’s Assets — Dish’s Likely Higher Bid

Softbank has increased its offer by $1.5 billion to $21.6 billion. The catch is that the Japanese company would own 78% of Sprint and not the previously planned 70%. That makes the ability of investors to evaluate the plan more difficult. Softbank would get an enhanced deal in terms of ownership. Whether its higher payment will fairly cover that is not immediately clear.

The number three U.S. wireless carrier’s board made its case that the Softbank offer is the only one which is worth the consideration of shareholders:

Sprint also announced today that its Special Committee and Board of Directors have unanimously determined that the proposal submitted by DISH Network Corporation (“DISH”) on April 15, 2013 is not reasonably likely to lead to a “superior offer” under the Merger Agreement. Sprint has engaged with DISH since April 15 and, after receiving waivers from SoftBank under the Merger Agreement, allowed DISH due diligence to commence on May 21. Despite the Special Committee’s diligence, DISH has not put forward an actionable offer. As a consequence of the lack of progress with DISH and the improved terms from SoftBank, the Special Committee ended its discussions with DISH and will request that DISH destroy all of the Sprint confidential information made available in the course of its diligence.

But the “superior offer” label may only be good for a day. Just two days ago Dish management commented:

“We continue to believe that Sprint has tremendous value. We will analyze the revised SoftBank bid as we consider our strategic options.”

Dish has a strategic problem. In its war with cable companies, telecommunications firms and 4G network owners, its ability to offer bundled products is limited, but its cost to get programming is fixed and growing.

Sprint’s shares have traded recently as if investors believe a bidding war is probable. The new Softbank offer is worth $7.65 per share. Sprint’s share price has been as high as $7.50 lately, and with the new Softbank offer it is likely to rise.

The other reason the Dish is likely to increase its offer is that the company is controlled by one person — Charles Ergen. His board is no better than a set of puppets. Ergen’s appetite for risk runs back more than 25 years. His reputation is such that he almost certainly can raise the money for a higher bid. And he knows full well that without Sprint, Dish has little chance to be a viable competitor in a market where asset ownership — spectrum and infrastructure — is as important as access to content.