Softbank to Offer Federal Government a Seat on Sprint’s Board of Directors

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Rather than put up more money in its bid to acquire control of Sprint Nextel Corp. (NYSE: S), Japan’s Softbank Corp. plans to offer the U.S. government the ability to approve one of the 10 members of the company’s board of directors. The offer comes in response to government security concerns over foreign ownership of part of the U.S. communications network.

Federal agencies engaged in reviewing Softbank’s offer include the Departments of Justice, Defense and Homeland Security. Because the deal involves a foreign buyer, the Committee on Foreign Investment in the U.S. (CFIUS) must also approve Softbank’s proposed purchase.

The Wall Street Journal cites “people familiar with the matter” as saying that “the government is also seeking the right to approve some of Sprint’s equipment purchases and wants the removal of Chinese gear from the Sprint affiliate’s network.”

Earlier this week, Dish Network Corp. (NASDAQ: DISH), which has made a competing offer for Sprint, launched a website attacking Softbank’s proposed acquisition of Sprint on national security grounds.

While it is not unheard of that a foreign buyer of a U.S. company must make some accommodation to U.S. national security concerns, none has so far involved giving the federal government approval of a board member. CNOOC Ltd. (NYSE: CEO) sold off assets in the U.S. Gulf of Mexico as part of its acquisition of Nexen.

A more comparable case is the recent acquisition of MetroPCS by Deutsche Telekom A.G. and the creation of T-Mobile US Inc. (NYSE: TMUS). The federal government does not get to approve a director, but it does require that the company provide advance notice of any new vendor of network equipment.

Softbank, which appears to be willing to do anything to get its hands on Sprint, should not acquiesce to this “request.” If the Wall Street Journal’s sources are right, the federal agencies are overreaching here. The national security concerns are real, but there are other, better, less heavy-handed ways of dealing with those concerns.

Softbank should absolutely refuse the federal demand for approval of a board member. That is not the way business is done in the United States.

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