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Sprint taps advisers to weigh Dish bid

by Chris Nolter | Published April 23, 2013 at 9:36 AM

A week after receiving a surprise $25.5 billion offer from Dish Network Corp., Sprint Nextel Corp. said Monday that a special committee of its board has hired advisers to weigh the bid.

The proposal from Charles Ergen's Dish Network is a challenge to Sprint's existing deal with Softbank Corp., helmed by chairman and CEO Masayoshi Son.

The offers have competing virtues, because of the differing asset portfolios and financial profiles of the suitors. Softbank maintains that its $20.1 billion agreement to buy 70% of Sprint is superior.

Weighing the offers falls to Sprint's newly announced special committee, chaired by retired WellPoint Inc. chairman Larry Glasscock. The group will receive financial advice from Chris Cormier and Ben Braun of Bank of America Merrill Lynch. Peter Lyons and Robert Katz of Shearman & Sterling LLP are providing counsel.

With its bid, Dish brings wireless spectrum and access to content. Ergen has said that a combination of the third-largest pay-TV company and third-largest wireless carrier would produce $37 billion in savings and other benefits.

Softbank is providing capital that would fund Sprint's network construction and leave the company with a slimmer balance sheet.

Dish traded Monday up 79 cents, or 2%, at $39.79. Sprint was down 2 cents, or 0.3%, at $7.15 per share.

Wells Fargo Securities LLC Marci Ryvicker estimated in a Monday report that a combined Dish and Sprint could be worth $80 per share at best, and $31 in the worst-case scenario. That would put Dish's upside to $41 per share, versus a downside of $8 per share.

Investors' two main worries, she wrote, are that Ergen would not achieve his ambitious synergies and that capital expenditures would be more than expected.

Dish's bid offers $4.76 per share in cash plus stock for a total value of $7 per share. Ryvicker suggested that Dish's offer is actually closer to $8 per share, considering benefits to the equity.

Softbank has offered a mix of cash and stock in the newly formed company. Ryvicker put Softbank's offer at $6.22 per share, including $4.03 per share in cash and $2.19 in equity.

Amy Yong of Macquarie Group Ltd. gives Ergen a 50-50 chance of prevailing. The analyst values a combined Dish at $52 per share, based on a multiple of 11 times anticipated 2015 free cash flow.

Keep in mind that Sprint and Dish have competing bids for Clearwire Corp. in the works. Sprint is the majority holder of the wireless broadband provider.

Moody's Investors Service estimates that Dish's leverage would rise from 4.8 times Ebitda at the close of 2012, to "well over" 6 times Ebitda if it acquired Sprint and rolled up the Clearwire stake.

Standard & Poor's said that a merger with Dish could cause it to lower Sprint's debt rating, while the deal with Softbank could push the rating higher.

Outcomes other than a deal with Sprint could also be beneficial to Dish. There is always the potential of a sale to AT&T Inc., which covets spectrum that Ergen has acquired in recent years.

If Dish acquired a merged T-Mobile USA Inc. and MetroPCS Communications Inc., Yong suggested the combined companies would be worth $59 per share, or 11 times 2015 free cash flow.

She would value a merged DirectTV Group and Dish at $106 per share, a multiple of 10 times 2015 free cash flow.

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Sprint taps advisers to weigh Dish bid

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