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Dish Network makes $25.5-billion bid for Sprint Nextel

A merger with Sprint would give Dish the ability to package Internet and phone service with its satellite-TV offerings.

April 16, 2013|By Joe Flint and Andrea Chang, Los Angeles Times
  • Pedestrians pass in front of a Sprint Nextel store in New York. Satellite-TV provider Dish Network made an unsolicitied $25.5-billion offer for Sprint, topping a bid by Japan's Softbank for the wireless carrier.
Pedestrians pass in front of a Sprint Nextel store in New York. Satellite-TV… (Victor J. Blue, Bloomberg )

Dish Network Corp. is taking a run at Sprint.

The satellite television company made an unsolicited $25.5-billion bid for Sprint Nextel Corp. on Monday in an attempt to marry one of the nation's biggest pay-TV providers with the third-largest U.S. wireless carrier.

A merger would give Dish the ability to package Internet and phone service with its satellite offerings.

"A transformative DISH/Sprint merger will create the only company that can offer customers a convenient, fully integrated, nationwide bundle of in- and out-of-home video, broadband and voice services," Dish Chairman Charles W. Ergen said.

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If successful, Dish's bid would derail a $20-billion bid for 70% of Sprint that Japanese telecommunications giant Softbank Corp. made last fall. A Softbank spokesman said the company  "believes that the agreed terms of our transaction with Sprint offer Sprint shareholders superior short- and long-term benefits to Dish's highly conditional preliminary proposal." SoftBank said it expects to close on its deal in July.

Sprint said its board of directors would weigh Dish's offer.

A potential Dish-Sprint combination would mark the latest shake-up in the volatile U.S. telecommunications industry as smaller players jostle to better do battle with giants Verizon Wireless and AT&T Inc.

In October, No. 4 wireless carrier T-Mobile announced that it had agreed to merge with MetroPCS, the nation's fifth-largest carrier, to create a beefed-up company geared toward consumers who want affordable mobile plans.

"Right now, AT&T and Verizon can charge whatever they want and raise prices with impunity," said Susan Crawford, a communications professor at Cardozo Law School and author of "Captive Audience," a new book about the state of the telecommunications industry. A Dish-Sprint combination "potentially creates a strong competitor, which may be good for consumers."

For Dish, making a play for Sprint is part of an ongoing strategy to become less reliant on the pay-television business. The Englewood, Colo., company has already spent billions acquiring mobile spectrum and had hinted that it might launch its own mobile phone service.

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However, such a move would be expensive and take years to complete. Buying Sprint would give Dish an immediate and formidable presence with an established brand.

With 14 million satellite-TV subscribers, Dish trails only Comcast Corp. and DirecTV among video providers. But growth in the industry has slowed in recent years and there are concerns about its future. Competition for customers is growing more intense and programming costs, particularly for sports, continue to skyrocket.

Furthermore, younger consumers are increasingly bypassing pay-TV in favor of Netflix and other digital platforms for their entertainment.

"Dish faces enormous challenges," Crawford said. "It's a gamble, but if they are going to grow they need to diversify."

Under the terms proposed by Dish, the $25.5-billion offer would be composed of $17.3 billion in cash and $8.2 billion in stock. Sprint shareholders would receive $7 per share, consisting of $4.76 in cash and 0.05953 Dish share per Sprint share.

In a letter to the Sprint board of directors, Ergen said a merger with Dish "will result in synergies and growth opportunities estimated at $37 billion in net present value," including $11 billion in cost savings.

Acquiring Sprint will leave Dish with a large phone bill. Sprint had revenue of $35.3 billion in 2012, compared with $14.3 billion for Dish. The combination would have about $36 billion in debt, not including the $9 billion that Dish would borrow to close the deal.

Sprint's stock rose 84 cents, or 13.5%, to $7.06 on Monday. Shares of Dish fell 86 cents, or 2.3%, to $36.77.

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Either deal would mean a significant boost for Sprint. With Softbank, the Overland Park, Kan., company would get a major cash infusion from a deep-pocketed investor, said Jonathan Atkin, a senior research analyst at RBC Capital Markets. But Dish Network can offer spectrum, operating synergies and perhaps some product innovations, he said.

"Whether this deal goes through or the Softbank one, Sprint just gets a major shot of adrenaline," Atkin said. "It has a good chance to bolster its position either way, no matter what road they take."

The aggressive bid for Sprint is typical of Ergen's cowboy style. Even in the news release detailing the offer, Dish describes itself as the "technology leader with track record of disrupting entrenched incumbents."

Ergen also doesn't mind making enemies along the way. He is currently persona non grata in Hollywood and Madison Avenue for introducing the AutoHop, a device Dish markets that makes it easy for viewers to skip commercials in previously recorded shows. Broadcast networks ABC, CBS, NBC and Fox are all in legal fights with Dish, trying to get the AutoHop outlawed on grounds that it violates copyright law.

As for his management strategy, Ergen once compared it to the hit TV show "Seinfeld."

"You initially didn't know exactly where things were going, but it seemed to all come together in the end," he said. "This is what is happening at Dish."

joe.flint@latimes.com

andrea.chang@latimes.com

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