I will go as far as to say that very few if anyone has been more right when it comes to Sprint Nextel Corporation (NYSE:S) and the acquisition spree that surrounds it more so than myself. I made Sprint my “Value of the Year” in 2012, much based on common sense, and I have maintained my common sense approach when it comes to Sprint Nextel Corporation (NYSE:S) and its latest round of acquisition rumors. Now, Sprint is trading with gains of 13%, as DISH Network Corp. (NASDAQ:DISH) attempts to acquire, but in my opinion, it will never materialize.
A Look Back at the Dish Fiasco
Let’s review a quick history lesson: First Softbank bids to acquire 70% of Sprint Nextel (I said it would go through). Then, Sprint bids to acquire Clearwire Corporation (NASDAQ:CLWR) in December (I made this call, but said that Sprint was crazy for waiting until after speculation moved Clearwire’s stock higher). Dish then comes into the equation, fighting the Sprint/Clearwire Corporation (NASDAQ:CLWR) acquisition by petitioning it to the FCC.
DISH Network Corp. (NASDAQ:DISH)’s argument made sense, and honestly, with the importance of spectrum I was very concerned that the FCC would not allow the acquisition of Clearwire to a foreign company (Softbank). This was especially confusing because it had already been reported that Sprint had approached Dish on December 7 about gaining access to its 4G spectrum. Obviously, this never occurred, and Dish has been on the defensive ever since.
Dish’s Newest Offer: A Bid of Little Substance
DISH Network Corp. (NASDAQ:DISH) is apparently at it again. The company couldn’t acquire Clearwire when it made a bid earlier this year (also strange), hasn’t been able to stop the sale of either Sprint Nextel Corporation (NYSE:S) or Clearwire Corporation (NASDAQ:CLWR), and now has a spectrum approved for wireless use and no wireless network to provide. Some may say, “just build a wireless segment,” however it is very difficult if not impossible due to the regulatory hurdles for a company such as Dish to create “Sprint” from scratch.
Dish Network is now off to a new plan, to make a bid for Sprint, one which will never materialize. Now just to be clear, back in October 2011, I said that Dish should acquire Sprint and that they very could well after Dish CEO Joseph Clayton said, “We’ll look at partnerships, acquisitions, all of the above.” Then he responded “could be” when asked specifically about acquiring Clearwire Corporation (NASDAQ:CLWR) or Sprint. The problem is that Dish waited too long, as both Sprint Nextel Corporation (NYSE:S) and Clearwire have appreciated two fold since that interview, and Dish cannot afford its own offer.
First, consider the fact that Softback is acquiring 70% of Sprint, and has already purchased 20% of the company. Dish’s offer would create at minimum $11 billion in cost synergies, and including Clearwire Corporation (NASDAQ:CLWR), would be a levered at 4.7 times EBITDA. In other words, it is very expensive, and DISH Network Corp. (NASDAQ:DISH) has little leverage meanwhile Softbank has already begun acquiring shares.
Dish would need to raise at minimum another $9 billion, but the problem is that Dish has already been hitting the debt markets to an unusual extent, with total debt of almost $12 billion and a debt-to-assets ratio of almost 70%! Therefore, I don’t think DISH Network Corp. (NASDAQ:DISH) could pull it off, because Dish stock would be crucial in the deal and its lower 7% on news of the deal.
What is the Real Goal of Dish?
So why is Dish making this offer if it can’t honor the deal? This is a good question. I suppose the company “could” squeeze the debt market even more, raise money through offerings, sell a large stake of stock, and could use all of its available resources to make the deal. However, I still believe, as explained here and here, that DISH Network Corp. (NASDAQ:DISH) simply wants to stop the Softbank deal, not necessarily acquire Sprint.