Dial M for Merger Global M&A Deal of the Year, U.S.: SoftBank/Sprint

By Chris Johnson September 23, 2013

SoftBank Corp.'s $21.6 billion acquisition of a 78 percent stake in Sprint Nextel Corporation was a classic piece of dealmaking drama. It had everything: box office numbers (it was the largest announced U.S. transaction of 2012 and the largest ever outbound investment by a Japanese company); myriad plot twists; and colorful protagonists. The story started in October 2012, when Masayoshi Son, the charismatic billionaire founder and CEO of Japanese telecom giant SoftBank, announced a bold deal for Overland Makoto Ishida Park, Kansas–based Sprint. For Sprint, North America's third-ranked wireless Morrison & Foerster's Robert Townsend (left) and Ken Siegel company, the combination would provide much-needed advised SoftBank GC Masato Suzaki (center). capital to better compete against leaders AT&T Inc. and Verizon Communications Inc. For SoftBank, it would gain a solid foothold in the lucrative U.S. cellular market and the to SoftBank alongside Tokyo managing partner and longtime chance to revive Sprint's fortunes, as it had with Vodafone SoftBank counsel Kenneth Siegel. "Sprint was already Japan following its $15 billion acquisition of that company lagging behind its competitors, so we didn't have time to wait in 2006. "When two rich firms rule the market like a for [Securities and Exchange Commission] approval." duopoly, we see this as a real opportunity for a challenger," To circumvent this issue, MoFo, together with Sprint's SoftBank's Son said at the time. advisers, Skadden, Arps, Slate, Keen to ensure that Sprint didn't Meagher & Flom, came up with the fall further behind its rivals, SoftBank ingenious plan to structure the initial offered to inject $3.1 billion in up-front investment as a debt security that capital to help develop its network would convert to equity at $5.25 per capacity. Sprint earmarked some of the share—Sprint's share price before news funds to purchase the remaining stock of the SoftBank acquisition inflated its of wireless Internet company Clearwire M&A value—if the acquisition was approved. Corporation (Sprint already owned The innovative transaction a 50.8 percent stake in the business), structure also involved the creation which was struggling financially but of a new publicly traded corporate owned valuable spectrum assets—including a large holding entity, "New Sprint," of which Sprint would become a in the 2.5 GHz range, a key frequency for the new breed of wholly owned subsidiary. Once the deal was met with 4G mobile services. shareholder approval, SoftBank would pay $1.9 billion to An equity investment would have triggered regulatory buy new common shares of New Sprint, which would be restrictions on foreign ownership of U.S. companies, however, renamed "Sprint Corporation" upon consummation of the necessitating a lengthy approvals process. "It left us facing an merger, further fortifying the company's balance sheet. The interesting challenge," explains Morrison & Foerster global remaining $16.64 billion in cash would then be distributed M&A co-chair Robert Townsend, who led the firm's advice to existing shareholders, who were given the option to either cash out at $7.65 per share—a more than 50 percent fund manager John Paulson, who owned a 4.5 percent stake premium on Sprint's closing share price prior to the merger in Sprint—saw Shearman & Sterling M&A co-head Peter announcement—or go for a longer-term play by exchanging Lyons brought in to advise a special committee that had been their existing shares for stock in the new, stronger company. established to evaluate the competing proposals. Meanwhile, in Tokyo, Siegel was leading round-the-clock To complicate matters further, DISH then launched what efforts to finalize the equally complex financing package. His Skadden M&A partner Thomas Kennedy, who led the team team worked wonders in putting the transaction—comprising representing Sprint, describes as "an aggressive political and $17.7 billion in bridge loans from Japanese banks and a $3.3 lobbying campaign" against SoftBank's acquisition, which was billion 144A bond offering on the Singapore Stock Exchange still in the depths of a "pretty intense process" of getting the that ranks as the largest ever by a nonfinancial Japanese relevant regulatory approvals—including those of the Federal corporation to retail investors—together in less than 10 weeks Communications Commission (FCC) and the Committee on from start to finish. (The banking consortium was advised on Foreign Investment in the United States. the financing by Baker & McKenzie.) In an attempt to avoid the sort of protracted negotiations Then things got really interesting. Last December, another that had delayed Sprint's deal for Clearwire following maverick billionaire, Charles Ergen, cofounder and chairman DISH's arrival, SoftBank granted waivers that permitted of satellite TV company DISH Network L.L.C., entered the Sprint's special committee to negotiate with DISH, which fray by making a rival bid for Clearwire. Townsend describes was represented in the various transactions by Sullivan & the move as "frustrating and exceptionally unusual," as Cromwell and White & Case, even though it had not yet Sprint already owned a controlling stake in Clearwire and made a definitive proposal to the Sprint board. had no intention of selling, but Ergen wasn't a stranger to "That would have been in breach of our original merger confrontation and controversy: His company was sued last agreement, but we were concerned that DISH would try to year by all four major networks over its introduction of a slow the process down and that Sprint would fall further TV player that automatically skips advertisements, leading behind competitively," Townsend explains. "Rolling the The Hollywood Reporter to label him "the most hated man in dice against a well-known gambler like Charlie Ergen was Hollywood. "Clearwire ultimately deemed the Sprint offer to a calculated risk on our part, but thankfully they came up be more attractive, but Ergen wasn't done yet. Far from it. sevens and we won." On April 15, Sprint's board members were convening at the DISH's interest did mean that SoftBank had to up its historic Kansas City Club for a special meal to celebrate the offer from $20.1 billion to $21.6 billion, but the size of its near-completion of the company's sale to SoftBank. As they stake also increased, from 70 to 78 percent. Having received sipped after-dinner cocktails, word came through that Ergen FCC approval on July 5, Sprint's $2.2 billion take-private had just held a press conference to announce that DISH acquisition of Clearwire, which saw Sprint agree to provide would be making a shocking $25.5 billion bid for complete the company with $800 million in financing, closed on July ownership of Sprint. 8. SoftBank completed its deal for Sprint the very next day. "It certainly caught us by surprise," says Sprint senior vice "I don't think I've ever seen a deal with so many moving president and general counsel Charles Wunsch. "It quickly parts—there was an almost unprecedented level of became a pretty interesting evening." complexity," says Kennedy, whose Skadden team included Half a world away, the news ruined another party too. attorneys in New York, Washington, D.C., Wilmington, As members of MoFo's executive committee, Siegel and Boston, Chicago, Palo Alto and Tokyo. "You had the truly Townsend were both in Singapore to toast the opening of extraordinary situation between Sprint and DISH where the firm's office in the country. "We were having a great they were competing for Clearwire; fighting in Washington; time, then all of a sudden, we started getting emails—lots of and then negotiating over a possible takeover. That's before emails," recalls Townsend, who says that his initial reaction you even think about the negotiations with some of the isn't fit for publication. "Within the hour, we were on our way recalcitrant Clearwire and Sprint shareholders that wanted to the airport." to push up the price. It was a year of contortions, but it was The DISH bid—which was publicly backed by hedge fascinating to be a part of it."

Reprinted with permission from the AmLaw Daily featured on September 23, 2013 © 2013 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 or [email protected]. # 002-09-13-06