By Karl Denninger :
The unsolicited bid comes into the maw of Sprint's acquisition by Japanese company Softbank (SFTBF.PK), which was to acquire 70% of the company in a fairly complex transaction that left shareholders, including myself, scratching our heads as to whether we should sell into the deal or keep our shares and wind up with a rather odd admixture of Softbank shares.
Dish earlier made a "wildcat" offer for money-losing Clearwire ( CLWR ), which Sprint controls -- a move that was rather disruptive to Softbank's plans and resulted in some interesting moves in the shares of all three firms.
This is a very interesting bid in a number of respects. First, it's a much "simpler" transaction than the existing Softbank offer and uses DISH's stock as currency -- trading with a 26 P/E but with the company being profitable the hybrid offer looks to be a good use of a fairly solid stock price. The deal looks manageable in terms of cost for Dish network, but it's an expensive one, requiring something like three times the firm's current cash in total cost. The clear intent from Dish's perspective is to acquire spectrum and be able to expand offerings -- with there being basically no consumer growth left in the wireless service space (pretty-much everyone has a cellphone at this point!), cannibalization is the order of the day and the bigger your maw the more effective you are at eating other people.
This Sprint shareholder is seriously considering selling at the proposed $7 deal price. My holdings are quite large in terms of the representation in my portfolio; the only reason I had held out originally is that there was another buck and change between the Softbank deal price and the stock's trading price, and I saw no reason to leave 10%+ on the table -- and I did expect the deal to close.
Now that there's another suitor the Softbank deal looks even more solid in that the option to simply take the money from Dish, assuming they can finance it, materially reduces the deal execution risk. As such with the stock trading a bit over $7 this morning I expect to take the position down during the trading day. While I like the combination the fact remains that what will come from this deal, assuming it succeeds in disrupting the Softbank acquisition and closes, will be a very high-levered firm with a P/E in the stratosphere, albeit with decent growth prospects. IMHO it would be a good speculative holding but not at the size it currently represents in my portfolio, and thus I will take the profits now and reassess down the road.
Disclosure: The author has a very large position he is, as noted in the article, taking off into the ramp this morning.
See also Trading Autudesk Inc. Pre-Earnings on seekingalpha.com
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.