Sprint confirms $20 billion SoftBank investment

10/15/2012 8:48 AM

05/16/2014 7:59 PM

Sprint Nextel Corp. said this morning that Tokyo-based SoftBank Corp. will acquire 70 percent of the Overland Park-based wireless company in a series of transactions valued at $20.1 billion.

In an announcement, Sprint said it would receive $8 billion of new capital from SoftBank, $3.1 billion soon, in a deal that creates a new company under the Sprint name.

It also brings to Sprint the experience that SoftBank has gained from battling larger rivals in the wireless market.

The companies, each of which is the third largest in its respective country, also see benefits from combining their purchases of wireless phones, network equipment and similar items in which bigger deals mean better prices.

Sprint also may be able to benefit from being able to refinance some of its $21 billion in debt at lower interest rates. The added money, however, isn’t likely to speed up Sprint’s expensive network upgrade.

“SoftBank’s cash contribution, deep expertise in the deployment of next-generation wireless networks and track record of success in taking share in mature markets from larger telecommunications competitors are expected to create a stronger, more competitive New Sprint that will deliver significant benefits to U.S. consumers,” Sprint’s announcement said.

Softbank Corp. agreed to pay $20.1 billion to acquire about a 70 percent stake in Sprint Nextel Corp. as Japan’s third-biggest mobile-phone operator seeks growth overseas amid a declining local market.

The deal was announced Monday at a

joint news conference in Tokyo

by Softbank President Masayoshi and Sprint chief executive Dan Hesse, who will retain that post after the deal.

Softbank will pay $12.1 billion to Sprint shareholders and the deal includes $8 billion of new capital, according to a statement issued in Tokyo today. The deal would be the biggest publicly announced outbound acquisition by a Japanese company since at least 2000, according to data compiled by Bloomberg.

Entering the U.S. allows billionaire Masayoshi Son, Softbank Corp.’s president, to participate in a bigger market that’s still growing in contrast to Japan where handset shipments tumbled 27 percent during the past five years. Sprint can fund a faster expansion of its 4G wireless network, pay down debt or make more acquisitions aimed at challenging bigger competitors Verizon Wireless and AT Inc.

During a conference call with analysts. Son complained about wireless Internet speeds in the United States and vowed to improve them through Sprint.

“I am a speed maniac,” Son said. “I cannot stand the slowness of the speed” in the United States.

Son withheld some of the details that analysts were seeking, for example about his strategy for the U.S. market.

“We have the capital. We have the knowhow. So wait and see. I’m going to prove how strong that is,” he said.

In an earlier conference in Toyko, Son said that the work at Sprint would not be “an easy path” but that “without taking on a challenge, we may end up facing bigger risks.”

Softbank shares fell 5.3 percent to 2,268 yen in Tokyo today, extending the record 17 percent plunge on Oct. 12. Son controls 20.92 percent of the mobile-phone operator, which was the first to offer Apple Inc.’s iPhone in Japan.

“The acquisitions of overseas companies by Japanese companies have never been a big success,” said Tomoaki Kawasaki, a Tokyo-based analyst at Iwai Cosmo Securities. “That shows there are always risks in making big overseas acquisitions for a Japanese company.”

Sprint’s existing shareholders would receive $12.1 billion and 30 percent ownership of what the announcement called “New Sprint.”

The deal, which will be subject to a Sprint shareholder vote, offers $7.30 a share for existing Sprint stock or one share of stock in the new company. The cash or stock deal will be doled out on a prorate basis, depending on shareholders’ request.

The deal will be funded by cash at hand and bridge financing. Softbank hired Mizuho Corporate and SMBC as the lead arrangers. The deal, which Son said will create the world’s third-largest mobile-phone services provider by revenue, is subject to a $600 million termination fee, according to the statement.

The boards of both companies have both approved the deal, which is expected to close by mid- 2013, according to the statement.

“This could be the final and most important piece to reposition Sprint to compete effectively with AT and Verizon,” Walt Piecyk, an analyst with BTIG LLC in New York, said before the deal was announced.

Son’s ambitions made him Japan’s second-richest man, with a fortune estimated at $7.3 billion, according to the Bloomberg Billionaires Index. He owns stakes in Yahoo Japan Corp., Alibaba Group Holding Ltd. and Zynga Inc., and in his biggest deal bought Vodafone Group Plc’s mobile-phone business in Japan in 2006.

Son’s ambition

Son has said he wants to raise Softbank’s market value to 200 trillion yen ($2.5 trillion) by 2040, compared with about 2.5 trillion yen today.

Hesse, who turns 59 this week, has been working to fix the situation he inherited five years ago after the $36 billion purchase of Nextel.

During Hesse’s tenure, 7.7 million contract customers left Sprint after a struggle to integrate the two companies led to complaints about network quality. Sprint ended up writing off about $30 billion, or 80 percent of the purchase price.

“The transaction will probably add a financial burden to Softbank because Sprint is a company that has been losing money,” Tomoaki Kawasaki, a Tokyo-based analyst at Iwai Cosmo Securities, said before the deal was announced. “That’s a concern in the short term.’

MetroPCS

Sprint may seek to bid for MetroPCS Communications Inc. or Purchase the rest of Clearwire Corp., people familiar with the matter have said. The company started offering its service on a faster network using the Long Term Evolution, or LTE, technology in five cities in July, with plans to add more this year to catch up with its larger competitors.

Sprint holds 48 percent of Bellevue, Washington-based Clearwire and has an equal percentage of voting power, Mike DiGioia, a spokesman for Clearwire, said Oct. 11.

Deutsche Telekom AG, Germany’s largest phone company, agreed Oct. 3 to combine T-Mobile USA with MetroPCS after it failed last year to sell the business to AT amid opposition from regulators.

Sprint fell 0.5 percent to $5.73 in New York trading Oct. 12.

Clearwire’s spectrum is probably a key component and an attractive asset for Softbank, Piecyk said.

Sprint trails Verizon Wireless, which has LTE service in about 340 markets after starting its upgrades a year earlier.

Softbank, the fastest-growing Japanese mobile-phone provider, boosted earnings by more than sevenfold during the past four years with the popularity of the iPhone.

That helped it close the gap with larger NTT DoCoMo Inc. and KDDI Corp. AT was first to offer the iPhone in the U.S., with Verizon and Sprint adding it later.

Mobile-handset sales in the U.S. increased to 191 million units last year from 182 million units in 2007, according to data compiled by IDC. In contrast, handset shipments declined to 38 million units in Japan last year from 52 million in 2007, according to IDC.

Son is pursuing an acquisition strategy that counts on smartphone users migrating to faster wireless networks to surf the Web and download videos and music. Softbank is looking to ride the fastest growth in mobile communications since 3G started rolling out a decade ago.

LTE subscriptions quadrupled this year to 73 million and are expected to reach 1.2 billion by 2016, according to projections from IHS iSuppli. Some of the world’s largest handset makers — Apple, Samsung Electronics Co. and HTC Corp. — support the technology.

In his 300-year plan announced in 2010, Son, 55, laid out a Darwinian comparison of business to living species and forecast 99.98 percent of companies would cease to exist in their current form in the next 30 years. He vowed Tokyo-based Softbank would survive.

“Even with the energy of Mr. Son, it won’t be so easy to succeed in the U.S. telecom business,” said Yuuki Sakurai, president of Fukoku Capital Management Inc., which manages 1.5 trillion yen of assets in Tokyo. “There are concerns whether Softbank can really control its diversified businesses going forward.”

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