Sprint Nextel Corp. (S - Analyst Report) 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 - Analyst Report) 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 - Analyst Report) and AT&T Inc. (T - Analyst Report) .
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 business).
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.