Is Dish Running Out Of Options After Sprint-Softbank Deal’s National Security Clearance?

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The Committee on Foreign Investment in the U.S. (CFIUS) has cleared the proposed merger of the U.S. based wireless carrier Sprint (NYSE:S) and Japan’s Softbank. Dish Network (NASDAQ:DISH) through a website – www.nationalsecuritymatters.com, has been voicing the threats that Softbank could bring to the national security of the U.S. While Softbank moves one step closer to its planned Sprint acquisition, Dish is left with limited options. Eventually it will be the Sprint’s shareholders approval, which will decide the fate for Dish and Softbank.

See our complete analysis for Dish Network

Softbank’s Deal Gets CFIUS Clearance

Dish has been raising concerns over the national security issue pertaining to the Sprint-Softbank merger. Dish said that Softbank’s use of equipment made by Chinese firms Huawei and ZTE in Japan, could facilitate Chinese spying and hacking in the U.S. [1] In the heat of this matter, several U.S. senators expressed concerns about the Sprint-Softbank deal. However, Softbank already pledged not to use Huawei and ZTE in the U.S. Softbank also promised to pay $1 billion to remove the Huawei equipment used by Clearwire, a U.S. based company which is partly owned by Sprint. [2]

Earlier this week, CFIUS, which reviews deals for national security issues, cleared the way for Softbank to acquire Sprint. This removes one of the biggest hurdles for Softbank, but it still needs an approval from the U.S. Federal Communications Commission (FCC), and finally one from Sprint’s shareholders. The FCC is expected to start reviewing the merger soon and considering that the deal doesn’t reduce competition in the wireless market, securing the FCC’s approval shouldn’t be much of a concern.

Dish’s Options

Dish is still in the game with a handful of options. Back in 2006, DP World of Dubai was trying to take over terminal operations at six U.S. ports. Interestingly, members of Congress denounced that deal over national security concerns even after an approval by CFIUS. DP World later dropped its deal. In this matter, the foreign acquirer was not acquiring the ports themselves, but rather a company that helped manage operations at the ports. SoftBank, on the other hand, is seeking to own and operate Sprint’s nationwide fiber backbone and wireless networks. [3] Dish can try to play this card, but it is unlikely that a company based in Japan would bother Congress as much the one based in the Middle East did.

Dish may also try to influence Sprint’s shareholders to vote down Softbank’s $20.1 billion offer for 70% stake against Dish’s offer, which is 13% higher to that of Softbank. It would be interesting to see how this story unfolds, but it is certain that Dish will continue eyeing wireless given the saturation in the U.S. pay-tv market. Dish has been acquiring valuable spectrum and it needs a carrier to bring those spectrum to potential use.  Dish could either build its own network, which would be expensive and time consuming, or buy an existing carrier like Sprint which can provide ready-to-use infrastructure.

Our price estimate for Dish Network stands at $38, roughly in line with the market price.

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Notes:
  1. The Risk, Dish Networks []
  2. Dish should think twice before accusing Softbank of dubious Chinese ties in their rivalry for Sprint, Yahoo Finance, May 27, 2013 []
  3. Dish responds to CFIUS agreement, Dish Networks []
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