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With Sprint offer, Dish puts squeeze on SoftBank

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Is that all you got, Masa? Sprint Nextel Corp. shareholders are happily situated between two eager bidders. Satellite TV provider Dish Network has made them a cash-and-stock offer of $7 (U.S.) 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 U.S. market and has already sunk capital in Sprint in the form of a $3.1-billion 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 U.S.. It can cut costs by consolidating sales and back-office operations. Dish aims for $1.8-billion a year in cuts. This is not unrealistic: the two companies have $29-billion 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' $11-billion 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 $600-million 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.

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Dish also promised $24-billion 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).

To win, Mr. Son will have to make an offer that compensates Sprint shareholders for the loss of the synergies they would have harvested as owners of the new Dish. It would be rational for him to walk away instead. Sprint shareholders will hope his ego prevails.

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