“Dish”ing It Out To Softbank

A student in my contracts course asked today about Dish’s hostile bid for Sprint and the implication for Sprint’s existing deal with Softbank. Great question! If only Dish had held off on their bid another couple weeks until when we are scheduled to talk about termination fees in M&A deals.

Turns out the Softbank-Sprint deal does have a break-up fee, to the tune of $600 million (as reported in the WSJ Online and confirmed in the actual deal). But Softbank went one step further than just including a termination fee. Concurrent with the original M&A agreement, Softbank also purchased a $3.1 billion convertible bond from Sprint. The conversion rate implies a price of $5.25 per share. That’s close to 600 million shares that Softbank can convert and sell back to any hostile bidder, capturing the additional value of the hostile tender offer. In the case of Dish’s $7/share bid, that’s roughly a $1 billion pay-off for losing the bidding war…in addition to the $600 million termination fee.

That’s a pretty sweet deal for sour grapes. It also illustrates that there are multiple ways bidders can protect their interests in an M&A deal.

Side note: the WSJ headlines report a potential $4 billion benefit to Softbank if Sprint bolts to Dish, but most of that is a windfall resulting from devaluation of the yen and it’s effect on the cash Softbank had set aside to effect the deal. It’s a nice windfall, but it’s not directly related to the terms of the deal itself.