DISH Network Corp (NASDAQ:DISH) is well on its way to capitalizing on growth opportunities in the mobility space. The company is determined to be a participant in mobile, and I don’t blame the company as network television isn’t likely to generate substantial growth in the future. The company’s growth has stagnated, making it important for the company to be a major distributor in mobile.
Dish buying out Sprint (NYSE:S) is unlikely
I don’t see a future in which Dish Network will buy out both Clearwire Corporation (NASDAQ:CLWR) and Sprint Nextel Corporation (NYSE:S). Softbank Corp (USA) (OTCMKTS:SFTBF), in a report, clearly lays out that, if the company were to buy out Sprint, it would be the most leveraged communication company in the world.
DISH Network Corp (NASDAQ:DISH) would be the most heavily in debt of all of the telecommunication companies in the world if it bought out Sprint.
The company also plans to buy out Clearwire, which doesn’t sound realistic. Before Dish could buy out Clearwire, it would have to either dilute its floating shares significantly, or spend $6.6 billion. Either way, the deal is a loser for shareholders because the company has $7.2 billion in cash and cash equivalents to work with. If the company spends the cash on buying ClearWire, it will still need to borrow money to raise the remaining capital to buy out Sprint Nextel Corporation (NYSE:S). Either way, shareholders are biting the pill with excessive leverage. The company simply cannot afford to buy both Sprint and Clearwire.
The real strategy
I don’t think Dish is planning to buy out both Clearwire and Sprint. The fact that Sprint’s board heavily favors Softbank Corp (USA) (OTCMKTS:SFTBF)’s proposal over Dish Network’s proves that DISH Network Corp (NASDAQ:DISH)’s strategy has to change if it wants to move into the mobile space. It also doesn’t help that it has to incur an additional $1.2 billion cost due to an amendable bond agreement between SoftBank and Sprint.
Source: Dish Network
If Dish Network was to merge with Sprint Nextel Corporation (NYSE:S), the combined entity would have a clear advantage in terms of spectrum, but why would the company bother with Sprint when it can buyout T MOBILE US INC (NYSE:TMUS)? I doubt the major holders of Sprint stock (institutional) will be jumping up and down over a deal that wouldn’t be completed until the second half of 2014, when the company can instead accept a buyout proposal for June 25. Wait a week, or wait a year? Most discounted cash flow models would favor one week. Let’s not forget the strategic value of Softbank Corp (USA) (OTCMKTS:SFTBF) from a strictly financial standpoint: less leverage, more capital, and better management. Greater economies of scale will favor Sprint.
The CEOs of both SoftBank and DISH Network Corp (NASDAQ:DISH) are thinking about buying out T-Mobile. Sprint currently owns slightly more than 50% of Clearwire Corporation (NASDAQ:CLWR), giving it some access to the wireless spectrum, but not all of it. Clearwire has 132 MHz in spectrum. Right now, Sprint Nextel Corporation (NYSE:S) would benefit the most if it had 100% of the spectrum from Clearwire, and the cash from SoftBank to finance the capital expenditure for its 4G network. If Sprint, Softbank Corp (USA) (OTCMKTS:SFTBF), and Clearwire were to be a fully combined entity, it will be more competitive than Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T) (based purely on a spectrum and financial strength standpoint).