NEW YORK ( TheDeal) -- Softbank Corp. chairman and CEO Masayoshi Son questioned the math underlying Dish Network Corp.'s rival bid for Sprint Nextel Corp. during an investor presentation earlier this week. Son suggested there was no need for the Japanese carrier to improve its offer, which he maintained is better than one submitted by Charlie Ergen's Dish Network in mid-April. "Why would we
raise the bid?" Son asked. Shares of Sprint gained 4 cents, or roughly 0.6% to $7.09 on Wednesday. Both Softbank and Dish included a mix of cash and stock in their offers for Sprint. The companies have differing ideas about how to value the equity in the post-merger company. When Softbank announced a $20.1 billion investment in Sprint in exchange for a 70% stake in October, it did not ascribe a per share value to the deal. Ergen has said that Dish's $25.5 billion offer comes to $7 per share, including $4.76 in cash and $2.24 in equity of the combined companies. The stock has traded above Dish's offer price. The satellite TV mogul said that Softbank's offer amounted to $6.22 per share, or $4.03 in cash and $2.16 in stock. Son took issue with the proposal on Tuesday. "Is it right? Is it true? Is it misleading?" he asked. "I would say the number is wrong, totally wrong." Son said that Dish's $7 per share valuation should be adjusted for dilution, added debt, Softbank's $600 million breakup fee, $400 million in other transaction expenses and Sprint's higher cost of capital for the year or so that it would take Ergen to close the deal. After those costs, Son suggested, Dish's offer would be $6.05 per share. Son said that Softbank's offer, before synergies, comes to $6.38 per share, including $4.03 in cash and $2.35 in equity, for a 5% premium to Dish. And unlike Dish, Softbank has a large business. It is in Japan, of course, so the company could not enjoy many of the benefits of combining operations. However, Son said on Tuesday that a combined Sprint and Softbank would be the top customer for Ericsson AB, Alcatel-Lucent SA and Samsung Corp. It would be one of the top buyers of Apple Inc.'s iPhone. The benefits of this scale in handsets and networking gear, plus Softbank's wireless expertise, would generate $2 billion in savings and improvements, Son said. The benefits would push the value of its offer to $7.65 per share.
Dish brings its own benefits, such as wireless spectrum that could be valued at $10 billion, marketing experience and millions of subscribers. Ergen said that the savings, lower capital expenditures and bundling would create $37 billion in benefits. "We remain confident that the Sprint board will share our view that the Dish proposal is superior by offering Sprint shareholders greater value with a higher price and more cash, while also creating the opportunity to participate meaningfully in a combined, and competitively unique, Dish/Sprint," a statement from the satellite TV company said Tuesday. Dish argued that Softbank, an overseas telecom operator, cannot offer Sprint the opportunity to cut back office costs or cross-market products. "We will continue to work with the Sprint board's special committee and its advisers, as we have been over the past week," Dish said. Son said that Dish's bid did not consider factors such as the cost of deploying a network over the company's spectrum, which he put at $6 billion. With synergies, he suggested, Dish's bid comes to $6.31 per share. Complicating the analysis, Sprint and Dish both have pending offers for wireless broadband provider Clearwire Corp. Clearwire brings its own spectrum holdings and debt that would have to be considered in the merger scenarios. Not surprisingly, Softbank and Dish also have differing views of leverage that the post-merger companies would have. Ergen said that combining his pay-TV company with Sprint and Clearwire would generate a company with leverage, net of cash, of 4.7 times Ebitda. Softbank, on the other hand, puts leverage of a merged Dish-Sprint-Clearwire at 5.9 times Ebitda, which Son described as a "very dangerous situation." Son said that Ergen's plans to have debt at Dish and Sprint, rather than combine the balance sheets, would present its own issues. "Two separate companies with two different sets of lenders would make it very, very complicated to get the synergies," Son said. Softbank projects that after acquiring Sprint and Clearwire it would have leverage of 3 times Ebitda. Sprint and Softbank have said that they could close their merger by July 1. There is a lot of math for Sprint's special committee to do over the next two months.
Written by Chris Nolter in New York