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

Softbank and Dish Networks look like two companies quickly moving toward one, but T-Mobile might serve as a curveball.

Sep 1, 2014 at 10:00AM

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.

Brian Nichols owns shares of Verizon Communications. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers