Report: SoftBank Threatens Banks Not To Finance Dish’s Sprint Deal

Posted May 12, 2013

SoftBank Corporation is doing something unusual to try and stop Dish Network’s acquisition offer for Sprint Nextel Corp.  SoftBank owns 33% of Alibaba Group Holding Ltd and reportedly threatened banks that if they financed Dish’s $25.5 billion rival offer, it would hurt their chances of landing a role in Alibaba’s IPO, according to sources with Reuters.

Alibaba countered this report by saying that even though SoftBank is a major investor, it does not make decisions for Alibaba’s management.  Although Alibaba is one of the most highly anticipated IPOs, they do not have a timetable yet.  Nor have they selected any potential underwriters.

SoftBank CEO Masayoshi Son and Dish’s Charlie Ergen are the most outspoken executives at both companies surrounding the deal.  In late April, Son said that Dish’s offer for Sprint was ridiculous and that they have no experience working with a mobile company.  Ergen responded that Dish is offering a higher price and emphasized that they are an American company, which would lead to less regulation.

This past October, SoftBank made an offer to buy 70% of Sprint for $20.1 billion.  Two months later, Sprint made an offer to buy out the stake in Clearwire Corporation that they do not already own yet.  SoftBank’s deal for Sprint hit a snag when Dish made a counter bid for Clearwire in January and followed that up with an offer for Sprint in April.

Dish needs to raise $9 billion in debt to finance the deal.  When SoftBank threatened banks that were considering Dish with the financing, at least one of the banks responded in SoftBank’s favor.  At least one major bank withdrew from financing Dish’s bid according to sources with Reuters.

Although this behavior seems unethical, it is still legal.  Banks are not allowed to offer a product a company based on the condition that they will get a role in another transaction.  But the clients of banks are not subject to those same types of restrictions.  For example, bank clients can choose a company as underwriters for their IPO based on the condition that they do not participate in a competitor’s future IPO.

Dish is being advised by Barclays Plc and Jefferies Group LLC.  These two banks are lined up to provide Dish with financing also.  Bank of America, Citigroup, UBS, and Deutsche Bank are conflicted with Dish and cannot provide financing due to their involvement in the bidding war.  Bank of America is part of Sprint’s special committee.  Citigroup, UBS, and Rothschild are advising Sprint.  Deutsche Bank is financing SoftBank’s proposal.  SoftBank removed Barclays from a role in financing their bid for Sprint after the bank revealed that they are advising Dish on a rival offer.