Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Softbank Knows It Needs More Than Sprint, but It Had Better Act Fast

Ever since Softbank (NASDAQOTH: SFTBY  ) became the majority owner of Sprint (NYSE: S  ) , merger and acquisition activity has been up, with buyouts of Clearwire and an attempted merger with T-Mobile. Clearly, Softbank knows it needs more than just Sprint to be relevant in the U.S., and after the failed acquisition of T-Mobile, Softbank appears to have something big in mind. Softbank needs to act fast, though!

Softbank and Sprint set their targets
Recently, news of Softbank's plan to sell nearly $4 billion in five-year bonds became public. While Softbank says the goal is to pay off existing debt and finance future investments, the fact that the company already has roughly $19 billion in cash on its balance sheet could be an indication that Softbank wants to attempt another large acquisition of sorts, perhaps a company to strengthen Sprint's competitive landscape.

Specifically, Sprint has lost over 600,000 subscribers during the first six months of 2014. Meanwhile, T-Mobile has gained more than three million; Verizon and AT&T have also gained in the first half of 2014. Nonetheless, Sprint is experimenting with lower-cost plans, but the problem is, Sprint has a hard enough time making debt payments with its current operations. Therefore, lowering its average revenue per user will make matters worse if new customers are not attracted quickly, meaning there's a lot of risk surrounding Sprint right now.

With that said, there have been a lot of rumors in recent months regarding where Softbank might want to invest, companies it could acquire to bolster Sprint's competitive position. Some have speculated the music and entertainment industries as potential targets, but if you're Softbank CEO and billionaire Masayoshi Son, Dish Networks (NASDAQ: DISH  ) is the real prize, an asset that could make a difference. 

Ergen really wants it
Importantly, Dish Networks Chairman Charlie Ergen has been wanting a telecom presence for the better part of two years. Ergen tried relentlessly to block Softbank's purchase of Sprint, then he tried to acquire Clearwire before losing the bidding war to Sprint.

Ergen's acquisition attempts began after Dish's airwaves were cleared for cell phone service back in 2012. As a result, Dish then gained spectrum that's valued north of $12 billion, but without a mobile presence, that spectrum is essentially useless. Notably, spectrum is used to improve the flow of data, so more spectrum equals more reliable data speeds.

As a result, it seems reasonable that Dish Networks would welcome a bid by Softbank, strengthening Sprint's network with additional spectrum, giving Dish the telecom presence it seeks, and allowing both companies to compete with AT&T following its purchase of DirecTV (NASDAQ: DTV  ) . Not to mention, with Dish and Sprint being smaller than their noted peers, Softbank is unlikely to face too much regulatory backlash.

Albeit, Dish Network's market capitalization of nearly $30 billion would make it a very pricey acquisition, not including its $13.5 billion debt position. However, Softbank is an acquisitive company, completing more than $50 billion worth of deals over the last five years. Therefore, it makes sense that Softbank could make a run at Dish, and it would definitely explain its desire to raise money so soon after the T-Mobile buyout fell apart.

Options galore
With that said, there's a lot of excitement surrounding Dish Networks right now, as the failed acquisition attempt of T-Mobile has put it in a good situation to finally gain a wireless business regardless if it's purchased by Softbank. Furthermore, with T-Mobile having five consecutive quarters of at least 1.5 million net new customers, Dish might prefer T-Mobile over a very troubled Sprint. In fact, Charlie Ergen recently said, "The Sprint announcement probably increased some optionality that we had," after the T-Mobile deal fell apart, signaling potential action involving Dish and one of the two carriers.

Hence, it shouldn't take long for Dish Networks to find itself in the news, because after years of trying, the company could get the asset it has wanted for so long. The big question is whether it's Sprint or T-Mobile. Therefore, if Softbank doesn't hurry, it might find itself in a situation where it's facing two very large wireless providers who also own the Nos. 2 and 3 satellite businesses in the U.S.

As for T-Mobile, it continues to benefit from the combined $6 billion in cash and spectrum it received from AT&T after their deal fell apart, which has given T-Mobile an exceptional amount of operational flexibility over the last year. In other words, T-Mobile doesn't need Dish like Sprint does.

Foolish Thoughts
Hence, if Sprint thinks competing against AT&T, Verizon, and T-Mobile is hard now, it could get worse if DirecTV and Dish are added to the mix. However, if Softbank can acquire Dish, Sprint would gain an asset that only one of its competitors own, which could reignite excitement among consumers and attract new subscribers to its stores. The next few months should be very exciting with Dish Networks being added to the mix.

Warren Buffett: This new technology is a "real threat"
At the recent Berkshire Hathaway annual meeting, Warren Buffett admitted this emerging technology is threatening his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. Find out how you can cash in on this technology before the crowd catches on, by jumping onto one company that could get you the biggest piece of the action. Click here to access a FREE investor alert on the company we're calling the "brains behind" the technology.

Read/Post Comments (2) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 01, 2014, at 11:41 AM, HDTVMAN wrote:

    Rock On, Softbank! In 2008 I put all my eggs in DIRECTV and DISH. Now both are ready to hatch in high multiple numbers!

  • Report this Comment On September 03, 2014, at 3:19 PM, Joshua007 wrote:

    The problem that sprint will have is that they will have to not only add support for the additional spectrum to future phones, which will take months after a deal closes, but they will also have to add new equipment to the towers. The new base station equipment that they have spent the last 2 years installing will be able to handle the new spectrum, so it won't take quite as long as their Network Vision project, but it will take significant time until customers see a real world changes. It wouldn't be a bad combination for sprint, but would do little to change the perception of sprint and although the satellite TV business would bring extra revenue, I don't know if it is a growing business.

    I believe US Cellular is a better play for Sprint/Softbank as they have rural coverage that sprint doesn't have and valuable low band spectrum. The customers and existing infrastructure could be integrated quickly and easily, and spectrum that sprint owns could be added to the US cell's towers and vice versa. They would then be able to consolidate some tower locations and front office operations, saving money in the process.

    There are other smaller companies that could be potential acquisitions, but few that would have as immediate or broad of an effect.

    I'm not saying that dish wouldn't be a good thing for sprint eventually, but I'd rather see a partnership where dish paid sprint to deploy their spectrum on Sprint's towers (network hosting was something sprint said they wanted to do). It would help Sprint's bottom line, allowing sprint to more effectively compete, and allow them to afford 600Mhz spectrum and make strategic a acquisitions.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3084528, ~/Articles/ArticleHandler.aspx, 9/1/2015 6:08:14 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Brian Nichols

Brian Nichols is the author of "5 Simple Steps to Find the Next Top-Performing Stock: How to Identify Investments that Can Double Quickly for Personal Success (2014)" and "Taking Charge With Value Investing (McGraw-Hill, 2013)". Brian is a value investor, but emphasizes psychology in his analysis. Brian studied psychology in undergrad, and uses his experience to find illogical value in the market. Brian covers technology and consumer goods for Motley Fool. Brian also updates all of his new and current positions in his Motley Fool CAPs page. Follow Brian on Twitter and like his page on Facebook for investment conversations and recent stories.

Today's Market

updated 8 hours ago Sponsored by:
DOW 16,528.03 -114.98 -0.69%
S&P 500 1,972.18 -16.69 -0.84%
NASD 4,776.51 -51.82 -1.07%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/31/2015 3:59 PM
DISH $59.27 Down -0.35 -0.59%
DISH Network Corpo… CAPS Rating: **
DTV $0.00 Down +0.00 +0.00%
DirecTV CAPS Rating: ***
S $5.06 Down -0.13 -2.50%
Sprint CAPS Rating: **
SFTBY $29.09 Down -0.27 -0.90%