Sprint Nextel Corp. ( S ) and Japanese telecom
company, SoftBank have announced amendments to their buyout
agreement. SoftBank has raised its bid offer to $21.6 billion from
its initial $20.1 billion offer in exchange of a 78% stake in
Sprint, up from the initial proposal of 70% holding in the company.
The new offer represents an increase of 35 cents per share in the
purchase price to $7.65 from the initially quoted $7.30.
The new proposal entails Sprint shareholders to a cash
consideration of $16.64 billion from SoftBank, up $4.5 billion from
the previous commitment. Additionally, SoftBank will provide an
initial investment of $5 billion in the newly formed company.
We see this amendment as SoftBank's attempt to successfully
counter Dish Network Corp. 's ( DISH ) offer of $7.00
per share (inclusive of $4.76 in cash and 0.05953 shares in Dish
for each Sprint share). Meanwhile, the fate of this imminent deal
depends on Sprint's shareholder approval, which has been postponed
to Jun 25 from Jun 12.
As Sprint shareholders had unanimously accepted the SoftBank bid
when it was filed, we believe the latter might also succeed in
winning shareholders confidence over its proposed agreement. Both,
the companies expect the deal to close by Jul 2013.
We believe that if the deal remains successful, it would change
the dynamics of the wireless industry, which is dominated by two
carriers, namely, Verzion Communications inc. ( VZ ) and
AT&T Inc. ( T ).
Apart from improving competitiveness, the deal would
significantly improve Sprint's liquidity and facilitate key
expansion plans for a stronger market position. With the potential
influx of capital from SoftBank, the company is hopeful purchasing
Clearwire. Gaining full rights over Clearwire would imply access to
its radio frequency spectrum ranging 2.5 GHz, utilized in providing
services using 4G 802.16e mobile WiMAX standards.
The acquisition will also support Sprint's multi-billion dollar
restructuring program known as Network Vision. Through this plan,
the company is concentrating on the core Sprint platform, which
includes CDMA, WiMAX and Long-Term Evolution (LTE) technologies,
and the eventual termination of the Nextel platform (iDEN
Though the company has enough liquidity to address the growing
costs of network upgrade, iPhone subsidies, debt maturities and
working capital requirements, it needs to bolster its liquidity
position for certain buyouts. The potential transaction with
Softbank would provide Sprint the financial support to build and
improve its competitive wireless network.
Sprint has a Zacks Rank #3, indicating a Hold rating.DISH NETWORK CP (DISH): Free Stock Analysis
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