Big battles at Sprint, Dell could be an M&A signal
Are more bidding wars coming? It's hard to say for sure, but the main elements all seem to be in place.
First, Michael Dell's proposed $24.4 billion takeover bid for Dell Inc. (DELL) with Silver Lake was trumped by higher offers from Blackstone and activist investor Carl Icahn. Today, Dish Network (DISH), the satellite TV operator controlled by Charlie Ergen, made an unsolicited $25.5 billion offer for Sprint (S), representing a 13% premium over Softbank's planned acquisition of 70% of the wireless operator for $20.1 billion.
Like Dell, Sprint's core business has been eroding for years, and CEO Dan Hesse is feeling Wall Street's pressure to improve the telecom's performance. During the last quarter, the Overland Park, Kan.-based company lost 243,000 monthly contract customers, more than the 206,000 expected by analysts Bloomberg had surveyed. AT&T (T) and Verizon (VZ), by contrast, gained customers during that same period.
Sprint, also like Dell, beat Wall Street's low expectations in its latest quarter, which may bolster Ergen's case that the deal with Japan's Softbank undervalues Sprint. Hesse, who has been the public face of Sprint because of his work as a TV pitchman, may find himself squeezed out of a job, the same situation that Michael Dell faces at the company he founded in his college dorm room more than two decades ago.
Whether the Dell and Sprint battles are foreshadowing more takeover deals to come is hard to say, but it certainly is possible. The cost of capital is currently dirt cheap, which means financing can be easily put together for most deals. Surging values for stocks also provide companies with the currency to make acquisitions, and many companies have record amounts of cash on their balance sheets.
Indeed, a KPMG survey released earlier this year found that a majority of dealmaking professionals expected an increase in mergers and acquisitions this year.
One thing is for sure, though: More big deals mean more big paydays for bankers. The Wall Street Journal estimates that banks associated with the Dell deal could top $400 million in fees, the most in three years. Sprint isn't going to reach that level unless more buyers emerge, and that certainly seems plausible
Wall Street's bankers will be ready to jump out of their Gucci loafers at a moment's notice.
Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.
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