The planned $20 billion-plus purchase by Japans Softbank of wireless network operator Sprint Nextel is developing into a fiercely competitive M&A contest that is set to be the deal story of the year in the Asia-Pacific region as it twists and turns towards an uncertain conclusion.
Softbank, Japans third-largest mobile-phone operator, is under pressure from Sprint shareholders to raise its offer after US rival Dish Network made an unsolicited counter-offer of $25.5 billion.
A shareholder vote on Softbanks deal to buy 70% of Sprint, which was signed in October, is scheduled for early this month.
The far higher Dish offer is likely to prove tempting, with several bankers close to the deal saying that Dish might well emerge as the buyer of choice, but that it is likely to take until the end of this year for a clear picture to emerge as counter-bids are considered.
Dish dishes out
Sprint was last month granted permission by Softbank to open its books and disclose non-public information to Dish. This is an important hurdle in any competitive M&A situation and is seen by some as a sign that the Dish offer is gaining credence.
Softbank said its move to waive some of the conditions of its initial agreement and allow Sprint to share information with Dish was based on a desire to see the takeover battle resolved quickly.
Some leading Sprint shareholders, including Paulson & Co and Omega Advisors, have publicly said the Dish offer looks better than the Softbank proposal. Early signs are that Softbank is prepared to raise its own bid should the Dish proposal begin to look like a winning one. The firm filed papers with Japans finance ministry late last month to sell ¥400 billion ($3.9 billion) of corporate bonds, suggesting it is looking to boost its own war chest.
Masayoshi Son, chief executive and chairman of Softbank, has characterized the competing bid by Dish as "incomplete and illusory", saying it is overly complicated and gives Sprints shareholders less in return than his companys offer. In a recent presentation, Son said he was confident that the Softbank deal would provide superior value, pointing out that the two parties had already carried out eight months of due diligence on a merger and had agreed terms.
Under these, Softbank would acquire $3.1 billion of newly issued convertible bonds in Sprint Nextel via a new holding company. These would be converted into Sprint Nextel shares and Sprint Nextel would become a wholly owned subsidiary of the new holding company. The new company would also issue $4.9 billion of new shares to Softbank and concurrently Sprint Nextel shareholders would receive $7.30 in cash or one new holding company share for each Sprint Nextel share they held. Softbank would own approximately a 70% stake of the new holding company and existing Sprint Nextel shareholders would retain the rest. The total cash distribution to Sprint Nextel shareholders would amount to $12.1 billion, bringing the total cost to Softbank to $20.1 billion. The value of the transaction including net debt totals $34.6 billion. The transaction is marked as the largest-ever overseas acquisition from Japan to date.
The list of advisers on the deal throws up some interesting stories. Raine Group, a little known but powerful advisory shop set up by Joseph Ravitch, formerly a senior partner at Goldman Sachs, and Jeff Sine, former head of technology, media and telecom at UBS, has emerged as the key US adviser to Softbank on the deal, in preference to other banks that have had close links to the Japanese firm, including Barclays. Softbanks chairman, Son, serves on the advisory board of the Raine Group.
Softbank removed Barclays from a role in the takeover of Sprint after the bank began advising Dish on the rival bid. Barclays had a smaller role on a bond deal aimed at part-financing the Softbank acquisition. If the Dish bid proves successful, it will be far more lucrative for Barclays. Sources close to the bids for Sprint say they expect several turns to the story yet before any deal is closed.
Raine takes its name from a combination of the surnames of its founders, with the E representing the partnership with Endeavor (now William Morris Endeavor) the talent agency founded by Ari Emanuel, the brother of Chicago mayor Rahm Emanuel and inspiration for the character Ari Gold in the TV show Entourage.
Working alongside Raine for Softbank are Mizuho, which has been present as a source of credit on most large Japanese deals in recent months, and Deutsche Bank. Citi alongside Rothschild and UBS is advising Sprint.
As well as Barclays, Dish is working with Macquarie, Jefferies and Royal Bank of Canada to help finance approximately $9 billion in debt needed for its offer.