Japanese mobile operator Softbank Corp said it will buy about 70% of Sprint Nextel Corp for $20.1 billion U.S., giving Softbank the American toehold it has long desired and Sprint the capital to expand its network and potentially buy peers.
The deal for the third-largest U.S. wireless carrier represents the most a Japanese firm has spent on an overseas acquisition.
Announced by Softbank's billionaire founder and chief Masayoshi Son and Sprint Chief Executive Dan Hesse at a packed news conference in Tokyo on Monday, the transaction gives Softbank entry into a U.S. market that is still growing, while Japan's market is stagnating.
Part of the deal involves a direct infusion of billions of dollars into Sprint, giving it the firepower to buy peers and build out its 4G network to compete in a market dominated by AT&T Inc and Verizon Wireless.
Shares in one of those potential targets, Clearwire Corp, surged 12% to $2.60 U.S. in Monday afternoon trading. Sprint owns 48% of Clearwire, and while Softbank said no action was required, most analysts and investors see a Sprint-Clearwire tie-up as an inevitable consequence of the Softbank deal.
One way or another, analysts have long said the U.S. telecommunications industry needed to consolidate, but few looked to Japan as a catalyst. Some investors and rating agencies worried that Softbank is biting off more than it can chew.
But the 55-year-old Son, a rare risk-taker in Japan's often cautious business circles, is betting U.S. growth can offer relief from cut-throat competition in Japan's saturated mobile market. Combined, Softbank and Sprint will have 96 million users.
The financing is highly complex, involving at least three steps with two entities as well as a debt conversion.
Softbank's newly created U.S. subsidiary New Sprint will buy $3.1 billion U.S. in old Sprint convertible bonds to start. After shareholders and regulators approve the proposed deal, Softbank will then buy $4.9 billion U.S. in New Sprint shares. The two together represent the $8-billion U.S. infusion directly into Sprint.
On top of that, 55% of existing Sprint shares would be exchanged for $7.30 U.S. per share in cash, representing a further $12.1 billion U.S.. A source close to the matter, who declined to be named publicly, said shareholders would actually be offered a choice between taking the cash or shares in the new company - though there will be caps in place so Softbank would not pay out more cash or give up more stock than planned.
The transactions are to be completed by mid-2013, at which point New Sprint will be a publicly traded company and the old Sprint will survive as its subsidiary.
Sprint stock closed Monday at $5.69 U.S., down four cents, or 0.7%, from Friday's close.
