Tickers in this Article: DISH, S, CLWR, VZ, VOD, T, DTV
It's hard not to give some credit to DISH Network’s (Nasdaq:DISH) leadership for realizing that they've taken the satellite TV concept about as far as they can. Instead, the company has been acknowledging (for some time now) that the company needed a pretty significant strategic transformation- one that would allow the company to leverage its wireless spectrum and compete more directly in the growing mobile broadband market.

To that end, Monday's bid for Sprint Nextel (NYSE:S) is bold, but not entirely surprising. In fact, I suggested a few months ago that DISH's bid for Clearwire (Nasdaq:CLWR) could be as much about forcing Sprint to the table as any particular desire to own Clearwire. Now the question is whether or not Sprint's board welcomes the overture, and whether Sprint's other bidder, Japan's Softbank, decides to up the ante.

The Offer On The Table
DISH Network has offered considerations to Sprint shareholders worth a total of $7 at the time of the bid. The company's offer consists of $4.76 per Sprint share in cash and approximately 0.06 shares of DISH stock. At the time of the bid, this offer represented a 12-13% premium over the Softbank bid, and the cash component is almost 20% larger ($4.76 versus $4.01).

If the deal goes through under these terms, Sprint shareholders will own nearly one-third (32%) of the new company, a company which will likely generate above $10 billion in pre-synergy EBITDA, but will also have around $40 billion in debt. The combined company would still be the number three wireless provider behind Verizon's (NYSE:VZ) Verizon Wireless (co-owned with Vodafone (Nasdaq:VOD)) and AT&T (NYSE:T), but it would have considerably more spectrum and a much more significant presence in bundling. There would also be some significant potential savings down the road, with DISH management identifying nearly $2 billion in potential annual cost savings a few years after close.

It's also worth noting that DISH Network's letter to Sprint's board included the assumption that the Sprint-Clearwire deal would still go through.

SEE: Mergers And Acquisitions: Understanding Takeovers

What Happens Next?
As of this writing, there had not yet been a response from Sprint's board of directors. I would hope that Sprint's board does right by its shareholders and at least gives serious consideration to the bid. That said, the large amount of debt that the combined company would hold does make for a pretty easy excuse to reject the deal and stay with Softbank's lower bid. Along similar lines, Softbank may be motivated to up its bid and/or the cash contribution to keep its bid on track.

An Expensive, But Likely Necessary, Move For DISH Network
Both bids for Sprint have merit. Softbank has been a successful mobile operator in Japan for some time now, and Sprint could benefit not only from Softbank's experience in competing against large incumbents but also potential capital equipment savings. With DISH Network, Sprint would be part of a more diverse company, and one whose spectrum and focus on broadband services could be a more relevant threat to Verizon, AT&T, and the various cable companies.

For DISH, this is an important move. The company was rumored to have made a bid for MetroPCS, only to lose to T-Mobile, and the number of credible U.S. wireless targets is definitely shrinking. Along the same lines, building its own wireless network or just sticking with satellite TV are both non-starters from a long-term strategy perspective. While a merger with DirecTV (NYSE:DTV) could certainly provide some cost synergies, it's hard to see how DISH Network can escape the fate of becoming a “cash farmer” without a definitive move into mobile.

SEE: Biggest Merger and Acquisition Disasters

The Bottom Line
This bid for Sprint Nextel is not cheap, but DISH Network doesn't have a lot of choice at this point. Getting terrestrial assets is important for the company and Sprint is likely the most worthwhile attainable asset. That said, I don't expect Sprint/Softbank to make this easy, and I wouldn't just assume that DISH Network will win in the end.

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