Has Sprint Secretly Chosen Its Suitor?

Sprint Nextel Corp (NYSE:S) and SoftBank Corp have asked regulators to keep reviewing their proposed $20.1 billion merger deal despite Dish Network Corp’s (NASDAQ:DISH) requests for a suspension of the review after the company offered an unsolicited counter bid for Sprint on Monday. The deal between Sprint and SoftBank would have SoftBank purchase 70% of Sprint, according to Reuters. Sprint said that its board is evaluating Dish’s offer but wants the FCC to continue reviewing its deal with SoftBank, which was in day 140 of the approximately 180 days it normally takes the FCC to make a decision.

In Sprint’s request to the FCC to continue reviewing the deal with SoftBank, the company said “The Commission must not be distracted by Dish’s latest maneuverings.” However, Sprint also said that the review would “in no way limit Dish’s ability to make competing bids for Sprint, nor does it prejudice in any way Dish’s ability to challenge SoftBank’s valuation of Sprint.” Dish asked the FCC on Thursday that the review be delayed.

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Dish has argued that it SoftBank–which is a Japanese company–purchases Sprint, national security could be at risk. Meanwhile, SoftBank said it does not plan to raise its $20.1 billion offer for control of Sprint, according to Bloomberg. SoftBank is Japan’s third largest wireless operator. Dish’s offer for Sprint is reportedly $25.5 billion and some prominent Sprint shareholders–like billion John Paulson and Omega Advisors Inc.–think Dish’s unsolicited offer is preferable.

Dish’s offer is $4.76 per share in cash and 0.5953 of a share of Dish for every share of Sprint. This would represent around 32% of the combined Sprint-Dish company. Dish says that this is a 13% premium over the SoftBank offer, which also includes stock. However, Sprint’s deal with SoftBank–which the FCC is reviewing–forces Sprint to pay SoftBank $600 million if it recommends another offer, like Dish’s.

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According to Christopher Larsen, an analyst at Piper Jaffray & Co., SoftBank would have to add around $2 billion in cash to its deal with Spring to match Dish’s offer. However SoftBank faces credit pressure at home in Japan. Both Standard & Poor and Moody’s Investors Service have put SoftBank’s credit ratings under review for a credit downgrade. Any downgrade by Moody’s would put SoftBank at junk status. In October 2012, SoftBank closed the purchase of $3.1 billion in convertible bonds that are exchangeable for 590 million shares of Sprint.

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