Japanese mobile operator Softbank Corp said yesterday it is to buy up to 70 percent of Sprint Nextel Corp, the third-largest US carrier, for about US$20.1 billion — the most a Japanese firm has spent on an overseas acquisition.
The deal, announced jointly by Softbank’s billionaire founder and chief Masayoshi Son and Sprint chief executive Dan Hesse at a packed news conference in Tokyo, is to provide Softbank entry into a US market that still shows growth, while Japan’s market is stagnating.
It will also give Sprint the firepower to buy peers and build out its 4G network to compete better in a US market dominated by AT&T and Verizon Wireless, analysts have said.
Hesse said the Softbank investment would give Sprint opportunities it had not had since he joined the firm in late 2007.
“This is pro-competitive and pro-consumer in the US because it creates a stronger No. 3 ... it competes with the duopoly of AT&T and Verizon. When you look at what Softbank has accomplished in Japan with the No. 3 carrier, it’s something we can learn from,” he said.
Combined, Softbank and Sprint would have 96 million users.
Softbank said that as part of the deal it would buy US$3.1 billion of bonds convertible into Sprint stock at US$5.25 a share, while about 55 percent of current Sprint shares would be exchanged for US$7.30 per share in cash, with the transactions to be completed by the middle of next year. Sprint shares closed at US$5.73 on Friday.
Softbank shares tumbled more than 8 percent earlier yesterday and closed at their lowest in 5 months, down 5.3 percent. The stock has lost more than a fifth of its value — or US$8.7 billion — since news first broke late last week of the firm’s interest in Sprint.
Son acknowledged that a move for Sprint was risky, but he said doing nothing was riskier still.
“It could be safe if you do nothing and our challenge in the US is not going to be easy at all. We must enter a new market, one with a different culture, and we must start again from zero after all we have built,” he told the news conference.
“Not taking this challenge will be a bigger risk,” he said, adding that his firm needed to break out of Japan’s fast-aging domestic market.
Four banks have approved loans totalling ￥1.65 trillion (US$21.1 billion) to Softbank, three sources with direct knowledge of the matter said yesterday. Mizuho Financial Group Inc, Sumitomo Mitsui Financial Group, Mitsubishi UFJ Financial Group and Deutsche Bank submitted a commitment letter to Softbank promising the loans yesterday.
Sprint has a net debt of about US$15 billion, while Softbank has a net debt of about US$10 billion.
Brokers have warned that the deal could leave Softbank with “unacceptably high” gearing, a ratio of its debt to shareholder capital. Standard & Poor’s has said the deal “may undermine Softbank’s financial risk profile” and would pressure its free operating cash flow for the next few years.
The companies said Hesse would remain as CEO of Sprint.
An alliance with Sprint could also give Softbank leverage when dealing with Apple Inc, helping bolster its domestic position against KDDI Corp, which also offers the iPhone in Japan, and market leader NTT Docomo, which is yet to offer the Apple smartphone.
The Sprint deal takes outbound deals by Japanese firms to a record US$75 billion this year, Thomson Reuters data showed, underscoring a strong appetite for overseas assets seemingly unaffected by signs of slowing global growth.
This is not the first Japanese foray into telecoms overseas. NTT Docomo racked up big losses after a string of failed investments in names like AT&T Wireless and Taiwan mobile operator KG Telecom in the late 1990s and early 2000s.