October 15, 2012

Softbank said to have deal to buy 70% of Sprint

Sprint Nextel Corp. is expected to announce a $20 billion deal today with Japanese telecom company SoftBank Corp. CNBC said Sunday that the two sides had agreed in principle on a transaction to give SoftBank 70 percent ownership of the Overland Park-based company.

Sprint Nextel Corp. is expected to announce a $20 billion deal today with Japanese telecom company SoftBank Corp., according to published reports.

CNBC said Sunday afternoon that the two sides had agreed in principle on a transaction designed to give SoftBank 70 percent ownership of the Overland Park-based wireless telephone company. It said the boards of both companies had been expected to approve the deal formally Sunday evening.

A New York Times report echoed some of the deal’s details but said talks were continuing and may still fall apart.

The reports were based on sources that neither media outlet identified.

A Sprint spokeswoman declined Sunday to comment on the report of an agreement. Sprint had, however, confirmed last week that it was in talks with SoftBank about “a potential substantial investment” in Sprint.

The deal that CNBC outlined would be a complex series of transactions aimed at providing Sprint a quick infusion of $3 billion and an additional $5 billion later.

It also would ask existing Sprint shareholders not for a vote on the deal, but to sell much of their existing stock to SoftBank at $7.30 a share in what the industry calls a tender offer. The reported price tag is a 27 percent premium to Sprint’s closing price Friday, which was $5.73.

A deal with SoftBank, particularly one that gives the Tokyo-based company control of Sprint, also raises important questions about Kansas City’s role in Sprint’s future.

As described by CNBC, this wouldn’t be a traditional merger like Sprint’s 2005 merger with Nextel Partners that sent its headquarters to Reston, Va., for a few years. The funding could help secure Sprint’s employee base and its Kansas City presence by strengthening its competitive hand.

SoftBank, for example, would be in no position to merge Sprint’s operations with it own as the third-largest wireless carrier in Japan with 30 million subscribers.

But any buyer that gains 70 percent ownership of Sprint would expect to have the last say on how the business operates. There may be duplication in some jobs that would be candidates for cutbacks and cost savings.

In Kansas City, Sprint’s growth years had turned it into the largest private employer in the Kansas City area and a substantial force in the city’s office space rental market. Its misfortunes left their mark through several rounds of layoffs.

Sprint shareholders who’ve ridden those waves over the years essentially are going to be offered $7.30 a share to get off the ride, under the deal described by CNBC.

“I would hang around. It can only get better from here,” said Berge Ayvazian, a telecom industry analyst.

That’s because the reported deal would help address Sprint’s most vexing problem, namely its finances.

Sprint executives have said that 2012 and 2013 represent “investment” years in which the company is spending heavily to generate stronger financial results starting in 2014.

Right now, that means the company owes $21 billion in debt and has borrowed to finance its expensive network upgrade and expansion into faster wireless technology called Long Term Evolution or LTE. Sprint also has paid hefty subsidies on each of the new iPhones its customers have signed up for, acknowledging that it will take time for those customers to become profitable for Sprint.

“This could be the final and most important piece to reposition Sprint to compete effectively with AT&T and Verizon,” analyst Walt Piecyk at BTIG told Bloomberg last week.

For example, the money could help strengthen marketing efforts at Sprint, which has 56.4 million subscribers, in its head-to-head competition against larger rivals Verizon and AT&T Inc., each of which has more than 100 million subscribers.

Under chief executive Dan Hesse, Sprint has repaired its damaged brand and won accolades for its customer service. The company has kept its bills paid but has struggled to scrape together the financing for its long turnaround.

Ayvazian said Sprint has several potential uses for the $8 billion the purported transaction would bring.

Money may help speed Sprint’s roll out of its advanced LTE wireless network, which currently reaches 24 markets. It badly lags behind Verizon, which will reach more than 400 markets with new launches set for this month, and AT&T, which has 76 markets equipped with LTE service.

Sprint may be able to use the money to help finance Clearwire Corp., which operates the WiMax network that many Sprint phones use for faster speed service and is building its own faster LTE network. Clearwire, which is 48 percent owned by Sprint, needs funding but is not directly part of the SoftBank deal, according to CNBC.

Ayvazian said the money could help Sprint address its need for additional wireless spectrum, which are the licensed airwaves over which cellular phone calls, texts, downloads and other traffic travel. Ayvazian said additional spectrum will be available soon in upcoming auctions.

The CNBC report said the $3 billion would come to Sprint “well before the deal” would be formally completed. Sprint, it said, would sell bonds to SoftBank, which could later convert the bonds into Sprint shares.

SoftBank’s convertible bonds would essentially give it Sprint stock at the price of $5.25 a share, according to CNBC. It said Sprint would sell SoftBank $5 billion worth of additional new shares also at $5.25 each.

Sprint essentially would be giving SoftBank an 8.4 percent discount to the $5.73 closing price Friday. The price tag would be substantially less than the $7.30 SoftBank is offering to pay existing Sprint shareholders for their stock.

To SoftBank, being the main owner of Sprint would give it access to the much larger U.S. wireless market.

SoftBank already is boosting its profits and shrinking its debt as the first Japanese wireless carrier to offer the iPhone. An American operation could further its competition against larger Japanese rivals NTT DoCoMo Inc., which has 60 million subscribers, and KDDI Corp., which has 36 million.

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