October 16, 2012 in Business

Softbank to buy 70 percent of Sprint for $20 billion

Yuri Kageyama Associated Press
 
Associated Press photo

Softbank Corp. President Masayoshi Son speaks during a joint press conference with Sprint Nextel Corp. Chief Executive Officer Dan Hesse in Tokyo on Monday.
(Full-size photo)

Big deals

Before Monday’s deal, the biggest overseas acquisition by a Japanese company was Japan Tobacco Inc.’s purchase of Gallaher Group of Great Britain in 2007 for about $19 billion.

TOKYO – Softbank Corp. has reached a deal to buy 70 percent of U.S. mobile carrier Sprint Nextel Corp. for $20.1 billion in the largest-ever foreign acquisition by a Japanese company.

The agreement, announced Monday at a joint news conference in Tokyo by Softbank President Masayoshi Son and Sprint Chief Executive Officer Dan Hesse, will bring together the third biggest mobile carriers of both Japan and the U.S., underlining the growth ambitions of Softbank, which has made a series of acquisitions over the last couple of decades.

It also shows how the strong yen, which is usually seen as a negative for export-reliant Japan Inc., has boosted the overseas purchasing power of Japanese corporations as a stagnant domestic market pushes them to look abroad for growth.

The deal was given a green light by the boards of both companies. It still needs approval from Sprint shareholders and U.S. regulators. Softbank said the transaction is expected to be completed by the middle of next year.

The combination of Softbank and Sprint will tie with AT&T for world’s No. 3 mobile company by revenue after China Mobile and Verizon, according to Softbank.

Son said the investment made sense because the U.S. is the world’s biggest market in smartphones, and it was still growing.

The news of the deal, which leaked late last week, had spooked investors worried about such a big investment and sent Softbank shares lower by about a third in recent sessions. Standard & Poor’s had placed Softbank on “credit watch negative,” meaning its credit rating could be downgraded. Shares of Sprint shot up in anticipation of the offer.

Sprint has struggled in recent years to compete with Verizon and AT&T. The company has $21 billion in long-term debt, and has launched a costly network restructuring and signed a long-term contract to buy $15.5 billion worth of iPhones from Apple Inc. over four years.

But Son said Sprint has been recovering on its own lately and is now getting cash, thanks to his investment. Son has a record of buying struggling mobile companies and turning them around, including the Japan unit of Vodafone.

Under the agreement with Sprint, $12.1 billion will go to Sprint shareholders and $8 billion will be fresh capital, which will serve to strengthen Sprint’s balance sheet and networks, Son said. Softbank is offering $7.30 a share for the existing shares, about 27 percent above Friday’s closing price of $5.73.

Son has made no secret that he has been looking abroad for new growth as the Japanese mobile market has been stagnant for years. Softbank has been an exception in racking up strong profit despite such stagnation, largely on the popularity of the iPhone.

By joining forces, Sprint and Softbank will become one of the top world smartphone providers, gaining greater bargaining power with the manufacturers of the gadgets and network equipment suppliers.

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