Un-Muddying the Waters: Making Sense of the Dish and SoftBank Dueling Offers for Sprint

Just look at the two offers for Sprint. One is clearly the better choice, both strategically and financially.

Which one that is depends, of course, on which company you ask: Dish Network or SoftBank, the two suitors for the No. 3 wireless carrier.

Each thinks it is and their rival is not, which is how contested deals always go — a back and forth of accusations and counter-charges that usually only result in muddying the waters.

Very muddy, in fact. Along with two strong-minded (and, more to the point, voluble) leaders — SoftBank’s Masayoshi Son and Dish’s Charlie Ergen — each side has an army of bankers, lawyers and other advisers willing to trot out a number of arguments for why its offer is superior and the myriad risks and downsides to the competitor’s bid.

And of course, the ultimate winner in this battle will have a huge impact on both Sprint itself and the overall level of competition in the U.S. wireless market.

So, for the benefit of the confused individual investors and consumers out there, we’ll try to boil down the points and counterpoints, as well as explain where things go from here.

SoftBank on Why Its Bid Is Better Than Dish’s:

Son made an hour-long, 11-point argument recently for why the Japanese investment and telecom giant’s bid is superior, but it basically boils down to three key points.

1) SoftBank is maintaining that Dish’s bid is actually not as good financially.

“It is incomplete and illusory,” Son said of the Dish bid, who insisted a deal by the satellite behemoth will take longer to complete and create a company swimming in debt. In contrast, Son pointed out that SoftBank is offering to put $8 billion into the company ($3.9 billion of this is already invested, so even if Dish were to prevail, SoftBank would be a significant Sprint shareholder.)

2) SoftBank promises it can get its deal done by July, while a Dish outcome could take well into next year to complete.

3) When it comes to managing things, SoftBank notes that instead of wireless experience, Dish brings only the baggage of its legacy business and a history of litigation with its partners.

SoftBank, as it touts itself, has experience running wireless companies and can offer improved scale to Sprint when it comes to buying network equipment and handsets.

“We are the world’s largest customer for many of these vendors,” Son said, emphasizing the buying power that Sprint would gain with companies such as Samsung, Ericsson and Apple. “Dish has zero expertise in our mobile industry.”

Dish, on Why Its Bid Is Better Than Softbank’s:

Dish’s main point is that its offer is just flat-out more money.

“It’s a higher financial offer,” Ergen said. “At Dish’s current stock price, our cash and the value of our shares … it’s about $7.10. The counter-offer from SoftBank is about $6.38. In fact, that’s not my words; that’s from Sprint’s own proxy.”

As for the fact its deal will take longer, Ergen says it won’t take as long as Sprint maintains and said the higher offer more than accounts for the delay.

But Ergen says Dish’s bid has several other advantages as well.

1) Dish brings a bunch of its own spectrum, representing airwaves that Sprint will inevitably need. By combining with Dish, Dish insists, Sprint will save itself from spending billions of dollars later.

2) The combined Dish/Sprint would be able to offer a combination of video, voice and data services. On the other hand, Sprint under SoftBank will have some additional capital, Dish says, but in essence be the same company that is today struggling to compete against larger rivals such as AT&T and Verizon.

3) While SoftBank is offering a bunch of cash up front, Dish said it will bring more ongoing value by virtue of various synergies, as well as the cash flow from Dish’s existing business.

“We’re bringing $20 billion of equity to the merger,” Ergen said. “I’m bringing $10 billion of equity personally. I’m taking my entire net worth and putting it into a Dish/Sprint transaction.”

Beyond the dollars-and-sense arguments, Ergen is attempting to wrap his deal in the flag, noting that his bid will create an American-owned company with Americans making the decisions, while SoftBank’s bid will put Sprint in foreign hands.

“Culturally we are much more aligned with Sprint today than probably a foreign company would be,” Ergen said. “A Japanese culture would be different than a U.S. culture. Our language is different; our culture is different. It doesn’t make their culture bad; they have a great culture. But it’s different.”

Subtle much?

Where things go from here:

Sprint is moving ahead to get all the regulatory and shareholder approvals that it needs with a goal of having the deal ready to close on July 1. A shareholder vote on SoftBank’s proposal is slated for June 12.

However, Sprint’s board has a duty to explore Dish’s bid, so it has formed a special committee to do that. That group of five independent directors — which has its own bankers and legal advisers — is in the early stages of evaluating Dish’s offer, having gotten permission from SoftBank to seek more information from the satellite company. Its job is to “provide its assessment to the full board in due course whether the proposal is, or is reasonably likely to lead to, a superior offer.”

But while Sprint is getting more information from Dish to understand its bid, information is not, at this point, flowing in the other direction. Sprint is not sharing any non-public info with Dish, meaning that Dish can’t yet undertake the due dilligence needed to make a formal bid and arrange financing.

For that to happen, Dish needs a determination from Sprint’s board committee that Dish’s interest could well lead to a superior offer. That would then pave the way for Sprint to crack open the books and Dish to make its offer.

Clearwire Muddies Things Further

A complicating factor in all this is Clearwire. Sprint already owns the majority of the wireless network operator and is seeking to buy the rest of the company to boost its spectrum position. Sprint’s bid, though, is contingent on the SoftBank deal going through.

Dish had also tried to buy Clearwire before it made its offer for Sprint. Clearwire, though, is moving forward to close its deal with Sprint, though a dissident shareholder is seeking to block the deal both through a lawsuit and proxy battle.

So where does this leave things?

For the moment, investors are betting that the existence of two interested parties will mean a higher offer from someone. Shares closed on Wednesday at $7.32, higher than either company’s current offer for the company.

Meanwhile, it’s business as usual for Sprint and its customers, with little near-term impact expected as the company continues playing catch-up with AT&T and Verizon in the race to cover America with a next-generation LTE network.