Chinese take out: Dish Network gets nasty with foreign suitor for Sprint Nextel

Dish Network gets nasty over suitor with ties to China

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Another Dubai Ports-type controversy over the foreign takeover of a sensitive U.S. corporate asset may be steaming into port.

The multibillion-dollar battle for control of Sprint Nextel Corp., the nation’s third-largest wireless carrier, being waged between Dish Network and Japanese rival SoftBank Corp. has taken an increasingly nasty turn in recent days, with Dish running full-page newspaper ads last week warning of undue foreign influence and power if SoftBank wins.

The ads cite Chinese-manufactured equipment that may be a major part of the Sprint-SoftBank combination, a line of attack SoftBank officials immediately condemned as “xenophobic.”

And in another echo of the fierce 2006 battle in which congressional and popular outrage helped torpedo a deal to run six key American ports by a company linked to the government of Dubai, Sen. Charles E. Schumer, New York Democrat, on Friday sent a letter to the Treasury Department and the Federal Communications Commission urging regulators to use “extreme caution” in weighing the Japanese company’s offer.

“I have real concerns that this deal, if approved, could make American industry and government agencies far more susceptible to cyberattacks from China and the People’s Liberation Army,” said Mr. Schumer, who also was a leading opponent of the Dubai Ports deal.

Stakes are huge for Japan

The stakes are immense: SoftBank’s $20.1 billion offer to buy 70 percent of Sprint Nextel would be the largest acquisition by a Japanese-based company in the U.S. market, and rejection of the deal could bring diplomatic headaches for the Obama administration in both Tokyo and Beijing.

Colorado-based Dish Network Corp. countered with a $25.5 billion offer last month for all of Sprint, which ranks a distant third in the U.S. cellphone market behind Verizon Communications Inc. and AT&T Inc. And the deal is shaping up as the first big regulatory battle pitting national security against market forces since the end of the Great Recession.

SoftBank executives took strong exception to the Dish full-page ads, which ran last week in Roll Call, Politico, National Journal and The Washington Post. A spokesman last week condemned the ads — and an anti-SoftBank website (nationalsecuritymatters.com) funded by Dish — as “undignified, xenophobic rhetoric.”

“It lacks appreciation for the critical, strategic relationships between the U.S. and Japan and the fact that SoftBank will be investing over $20 billion in Sprint, which will create jobs and a strong national wireless competitor,” the spokesman said.

Added costs to ease fears

But SoftBank also has taken steps to try to address the national security fears, steps one industry publication said could cost the company another $1 billion if the deal goes through. SoftBank currently has ties with Chinese manufacturer Huawei Technologies but has agreed not to use Huawei equipment in Sprint’s network and to replace Huawei products in Clearwire, a wireless service provider that Sprint is trying to acquire.

SoftBank last week also took the unusual step of saying it would let the U.S. government approve one of its directors to the Sprint board. The Wall Street Journal reported that the director would be responsible for overseeing national security concerns and be a member of Sprint’s compensation committee.

“It shows that SoftBank will do whatever it takes to get the deal done; they’re willing participants in the process,” telecom industry analyst Jeff Kagan said. “It’s not the foreign ownership that’s a problem. It’s the China part that’s the problem.”

Some estimates say more than 90 percent of cyberattacks in the U.S. originate from China. Recently, the Obama administration accused China’s military of hacking into the computer systems of the U.S. government and defense contractors.

The Dish advertisements openly liken a potential Sprint-SoftBank merger to the Dubai deal. In a statement late last week, Dish general counsel Stanton Dodge said the steps that SoftBank has taken to reassure the government only “confirm the serious national security risks of SoftBank acquiring Sprint and its wireless and wireline assets of national strategic importance.”

“We remain concerned, however, that these reported steps do not adequately protect our national security interests, especially with respect to Sprint’s critical fiber backbone network and Sprint’s extensive contracts to provide important telecommunications services for government, law enforcement and defense customers,” Mr. Dodge said.

In a May 21 hearing on cybersecurity before the House Energy and Commerce subcommittee on communications and technology, Stewart A. Baker from Steptoe & Johnson, a law firm representing Dish Network, said the government does not have much regulation authority over products in the telecom industry unless a foreign buyer purchases a U.S. company.

“It is an odd [set] of incentives for the U.S. government in which they might actually have more regulatory authority if they let the transaction go through,” Mr. Baker said about the Sprint-SoftBank deal.

When foreign ownership of a company is to exceed 25 percent, the FCC gives additional review and scrutiny of the transaction’s impact on public interest. The Justice Department and the Committee on Foreign Investment in the United States (CFIUS), an interagency committee that reviews transactions involving foreign ownership of U.S. businesses, are also reviewing the SoftBank deal to ensure national security is not affected. Dish, as a U.S.-based enterprise, would not be subject to a CFIUS review.

Shareholder meeting set

The lobbying comes as Sprint shareholders are set to gather June 12 to consider the SoftBank offer.

Analysts say a SoftBank merger could give Sprint the experience and financial ability to compete with AT&T and Verizon Wireless, while a Dish merger would combine the television and wireless industries into one U.S.-based company.

If Sprint decides to close the deal with Dish, it will be forced to pay a $600 million break-up fee to SoftBank, an amount that Dish executives argue will be made up through the higher premium it is offering.

Sprint formed a special committee last month to evaluate Dish’s offer but asked the FCC to keep its review of the Sprint-SoftBank deal on track for approval.

Dish Network’s hardball tactics have faced some criticism in the trade press. Dish’s $25.5 billion takeover bid came six months after the Sprint-SoftBank deal was announced, and raising national security concerns so late in the process “feels like a desperate act,” wrote Gina Chon, who covers the industry for the tech news website Quartz (qz.com).

“If CFIUS and the FCC give the green light to SoftBank,” she added, “it will be up to Sprint investors to decide which offer they prefer, and the main things they will care about [are] deal certainty and price.”

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