SoftBank to Prove It’s No Security Risk

Softbank Corp. has raised the stakes in its bid for Sprint Nextel Corp. (NYSE:S). The Japanese company announced it would give the U.S. government the right to approve one of the directors of Sprint’s board in a move to ease security concerns over the foreign company’s takeover of Sprint.

The director named by the government would be responsible for overseeing national security concerns and making sure Sprint complies with agreements on network security. The move would give the U.S. government an unusual amount of influence over Sprint’s board. The U.S. government frequently imposes restrictions on telecom companies with foreign investors, but it would have a much higher amount of influence on the company than usual if the SoftBank-Sprint deal goes through.

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One of the government’s main concerns about the deal is Sprint’s Chinese equipment purchases. The government would like to approve Sprint’s future equipment buys and to remove the use of Chinese gear in Sprint’s affiliates. Of biggest concern is Chinese supplier Huawei Technologies Co., which has been accused of being a security risk. Last fall Congress recommended telephone companies not do business with the company, due to fear of spying. Huawei responded, saying that it does not cooperate with spying.

Huawei founder Ren Zhengfei gave his first ever interview in New Zealand earlier this month in an attempt to dispel the rumors surrounding the company. Huawei has suffered losses in the U.S. and Australia in response to the accusations. Ren said he is confident that no member of Huawei’s staff would engage in spying, even if asked to do so by the Chinese government. He went on to say that Huawei’s relationship with China is no different than any other company’s relationship with their home country’s government.

Still on the table for Sprint is a $25.5 billion offer from Dish Network Corp. (NASDAQ:DISH). Part of Dish’s campaign to purchase Sprint has involved trying to convince the government that the foreign SoftBank poses a security risk. But while SoftBank has promised to only use equipment approved by the government and to avoid Huawei Technologies, Dish has made no such promise.

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Bound up in the fight between SoftBank and Dish is Sprint’s recent bid to purchase wireless service provider Clearwire (NASDAQ:CLWR), a company Dish had also been bidding on. Clearwire said that rival bids from Dish and Verizon (NYSE:VZ) were “not actionable.” Clearwire is set to vote on the offer May 30. Sprint’s purchase of Clearwire will only increase Dish’s desire to buy Sprint

As negotiations between SoftBank and the U.S. government continue, Sprint is set to vote on the $20 billion takeover on June 12.

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