Shares of Sprint Nextel (S) jumped 13.5% to 7.06 on Monday, as investors expected Japan's SoftBank to sweeten its offer for the No. 3 U.S. wireless firm after satellite broadcaster Dish Network early Monday made a surprise $25.5 billion takeover bid.
While a bidding war over Sprint Nextel could erupt, analysts say another scenario — and possibly the goal of Dish (DISH) Chairman Charlie Ergen — is that SoftBank and Dish might forge a joint venture.
Dish Network stepped up efforts to find a partner to sell 4G wireless services after the Federal Communications Commission last year approved its acquisition of radio spectrum from two bankrupt companies on the condition that Dish builds out a network by 2017.
Dish said its Sprint offer includes $17.3 billion in cash and $8.2 billion in stock. The satellite broadcaster had $8.2 billion in cash on its balance sheet as of Dec. 31.
In its letter to Sprint's board, Dish said it had received a "highly confident letter" from Barclays regarding its ability to raise the money. Barclays is serving as financial adviser to Dish.
Dish shares fell 2.3% Monday. Its thrust into wireless comes amid slowing growth in its core satellite TV business.
"We believe Dish is more strategically desperate for Sprint than (is) SoftBank, but SoftBank certainly has deeper pockets," Stifel Nicolaus analyst Christopher King told IBD.
Sprint said its board would meet to consider Dish's offer.
SoftBank founder Masayoshi Son is unlikely to walk away, analysts say. Macquarie analyst Amy Yong says SoftBank has access to cheap capital, though Japan's falling currency could diminish its edge in a bidding war.
"SoftBank would be our favorite to prevail ...," Yong said in a research note. "However, it is also possible that (Masayoshi) and Ergen could come to some type of network and content joint venture with SoftBank as the controlling shareholder.
JPMorgan analyst Phillip Cusick, in a report, said Dish-Sprint would pose "a very compelling competitor to AT&T (T) and Verizon (VZ) (and) cable companies.
Dish Synergies With Sprint One problem for SoftBank is that Dish claims to have more operational synergies with Sprint, including mobile video services. That could sway Sprint shareholders, says Oppenheimer analyst Tim Horan.
"We would think the Sprint board will turn down this first offer in hopes of a bidding war, which looks likely if Dish is serious, which they seem to be," Horan said in a report.
On a conference call with analysts early Monday, Ergen hedged on whether Dish would increase its offer if SoftBank counterbids. "We'll cross that bridge if we get to it," Ergen said.
In October, SoftBank announced it would buy a 70% stake in Sprint for $20.1 billion.
Piper Jaffray analyst Christopher Larsen called Dish's $25.5 billion offer "competitive to the one already agreed to with SoftBank, with a calculated offer of $7 per share ... . We think it's possible that this is not the best and final bid by Dish.
Shares of financially strapped Clearwire (CLWR), which operates a 4G wireless network, tumbled 3.4% Monday. Sprint is the biggest shareholder in Clearwire and is seeking to buy the rest of the company.
Dish says if Sprint accepts its offer, it expects Sprint's pending deal with Clearwire to be completed. In January, Dish offered to buy spectrum from Clearwire for $2.2 billion, or to acquire all of Clearwire.
Some Clearwire shareholders say Sprint isn't offering enough for Clearwire's spectrum licenses. Clearwire on Friday said it might default on interest payments rather than continue to borrow money from Sprint.
"We believe that Dish may be a substantial holder of Clearwire's debt, so could exercise more influence than Sprint if the company were to go into bankruptcy," said Cusick in a report.