Is that all you got, Masa? Sprint shareholders are happily situated between two eager bidders. Satellite TV provider Dish Network has made them a cash-and-stock offer of $7 per share. This is about 13 per cent higher than the offer from Masayoshi Son’s SoftBank, made back in October. Mr Son is committed to the US market and has already sunk capital in Sprint in the form of a $3.1bn convertible bond. He is likely to make another offer.
It will have to be meaty. Dish operates in a business with many structural similarities to Sprint, and, unlike SoftBank, does so in the US. It can cut costs by consolidating sales and back-office operations. Dish aims for $1.8bn a year in cuts. This is not unrealistic: the two companies have $29bn in sales and overhead costs between them. Sprint shareholders will own a third of the new company and therefore, in theory, a third of the savings’ $11bn present value. All they would get from SoftBank is the thin gruel of increased purchasing power and “expertise”. Yes, Dish will have to pay a $600m break-up fee to SoftBank and the deal will leave it leveraged to at least four times its operating cash flow. But its offer remains superior.
Dish also promised $24bn in future revenue growth opportunities, based on an integrated offering of wireless data and satellite television. Sprint holders should ignore these giddy figures. Bundling services does improve customer retention. But it is not possible to predict what the mobile video market will look like in a few years’ time (other than to say it will be hideously competitive).