Sprint Nextel and Japan's SoftBank have reached an agreement with U.S. authorities on the national security aspects of the Japanese firm's pending $20.1 billion deal to win control of the U.S. wireless carrier, sources familiar with the matter said on Tuesday.
As a part of the agreement, the U.S. government will have a veto over new equipment purchases by Sprint in certain circumstances if the two companies merged, one of the sources said.
The government will also establish a four-member committee responsible for ensuring that the companies abide by their national security promises. A Sprint board member will be on the committee, the source said, asking to remain anonymous because the information was not public.
Formal announcement of the highly unusual agreement -- drawn up amid fears of Chinese espionage -- is likely to come early Wednesday in the United States, three sources told Reuters.
Japanese mobile operator SoftBank agreed to buy a 70 percent stake in Sprint last October. That deal is facing a challenge from Dish Network, a U.S. satellite TV provider which launched a $25.5 billion rival bid in April.
Dish has taken out full-page ads in Washington newspapers warning that a SoftBank-Sprint merger would threaten U.S. national security.
U.S. Senator Charles Schumer expressed strong concern on Friday about the proposed merger, warning it could expose the United States to Chinese cyber attacks.
Sources said SoftBank agreed with U.S. authorities to remove equipment made by China's Huawei Technologies from Sprint and Clearwire Corp's networks if the Japanese company completed its deal by the end of 2016.
The House Intelligence Committee last year urged U.S. telecommunication firms not to do business with Huawei and its peer, ZTE Corp, because it said potential Chinese state influence on the companies posed a threat to U.S. security. SoftBank uses equipment manufactured by ZTE and Huawei in Japan.
Last week, Clearwire's board recommended Sprint's sweetened buyout offer after Sprint raised its bid to $3.40 per share, from $2.97 per share, for the 50 percent it does not already own. Clearwire shareholders will vote on the deal May 31.
Dish reiterated its warnings on Tuesday that a Sprint-SoftBank tie-up posed national security risks.
"We believe the U.S. government should proceed with deliberation and caution in turning over assets of national strategic importance such as the Sprint fiber backbone and wireless networks to a foreign-controlled entity with significant ties to China," a spokesman said.
"Oversight and accountability for our national network infrastructure is critical at a time when offshore attacks on that infrastructure continue to rise."
Industry experts say the U.S. Federal Communications Commission is unlikely to make a ruling before Sprint makes a final choice of buyer and the inter-agency Committee on Foreign Investment in the United States (CFIUS) completes its own review.
CFIUS reviews are highly secretive and weigh whether foreign ownership of a U.S. company poses threats to or increases vulnerability of the nation's infrastructure and assets. Although technically voluntary, foreign bidders prefer asking CFIUS to review their deals before completing them.
© Thomson Reuters 2013