Sprint Nextel Corp. investors mostly opted to receive cash rather than stock in SoftBank Corp.’s takeover of the wireless carrier, creating more demand than the deal could accommodate.
Of the 3 billion shares outstanding as of July 5, holders of about 53 percent elected to get some of the $16.64 billion in cash available, and 3 percent asked for shares in the new Sprint Corp.
The companies said 44 percent didn’t make a choice, which under the rules means their’s will be considered requests for cash.. Because the available cash consideration was oversubscribed, they stand to get approximately $5.65 in cash for each share and 0.26 shares of new Sprint common stock.
The $21.6 billion takeover won clearance from the Federal Communications Commission last week, following shareholders’ approval of the offer in June. The fact that only about 3 percent of shareholders opted to receive shares in the deal signals that most aren’t going to stick around to see what happens to the new company, said Chris King, an analyst at Stifel Nicolaus & Co. in Baltimore.
“A lot of Sprint shareholders were probably playing the M&A game and aren’t really interested in riding it out operationally with the company for the long run,” said King, who has a hold rating on the stock.
The FCC also approved Overland Park, Kansas-based Sprint’s offer to buy the half of wireless operator Clearwire Corp. it doesn’t already own. Clearwire shareholders will vote on that transaction at 12:30 Monday afternoon.
SoftBank’s takeover of Sprint, which comes with a cash infusion, stands to make the carrier a bigger competitor to the nation’s two biggest mobile-phone services, Verizon Wireless and AT&T Inc. SoftBank’s founder, Japanese billionaire Masayoshi Son, has pledged to use innovative pricing and network investments to gain an edge.
After the merger is completed, investors may revisit the new company, said Kevin Roe, founder of Roe Equity Research in Dorset, Vermont.
“Traditional telecom investors will certainly take another hard look at Sprint’s prospects once Softbank has fully articulated their operational, financial and management strategy for the new Sprint/Clearwire,” he said.
Standard & Poor’s Corp. cut Softbank’s credit rating to reflect increased financial risks following the FCC’s clearance. S&P said Monday it cut Softbank’s rating to BB+, which is the highest junk grade rating, from BBB. Softbank shares fell 3.4 percent in Tokyo.
The ratings agency says Softbank’s debt will increase substantially as a result of buying 78 percent of Sprint.
S&P says Sprint has weak cash flow and high debt while Sprint’s acquisition of Clearwire will add to the financial burden on Japan’s Softbank.
But S&P expects Sprint’s profitability to improve under its new owner and says Softbank is supported by its strong market position in Japan.
The Associated Press contributed.