Softbank Corp. and Sprint Nextel Corp. have entered into definitive agreements under which Japan’s third-largest mobile phone carrier will pay $20.1 billion (about ¥1.57 trillion) to acquire a 70 percent stake in the No. 3 U.S. cellphone firm, Softbank said Monday.
The deal would create one of the leading communications groups in the world, boasting 90 million mobile phone subscriptions.
Softbank will pay $12.1 billion, or about ¥946.9 billion, to Sprint shareholders and the deal includes $8 billion, or ¥624 billion, in new capital, the company said.
The move came as mobile companies are actively making investments to boost infrastructure for high-speed data communications using the Long Term Evolution network service.
The deal will help billionaire Masayoshi Son’s Softbank start operations in the U.S. after handset shipments tumbled 27 percent in Japan over the past five years. With the investment, 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&T Inc.
At a hastily called news conference in Tokyo on Monday evening, Son admitted entering the U.S. market will not be easy.
“However, just keeping the status quo may be a bigger risk,” he said, pointing out negative factors in the Japanese market, including the low birthrate.
Softbank shares fell 5.3 percent to ¥2,268 in Tokyo on Monday, extending a record 17 percent plunge Friday. Son controls 20.92 percent of the company, which was the first to offer Apple Inc.’s iPhone in Japan.
“Sprint’s earnings are hitting the bottom and it will probably turn to an improvement stage as it starts offering more LTE service,” said Hitoshi Hayakawa, a Credit Suisse Group AG analyst in Tokyo. That’s similar to what happened after Softbank acquired Vodafone Japan in 2006, he said.
Sources said Softbank is also eyeing purchases of other communications companies, including Clearwire Corp., in which Sprint holds a nearly 50 percent stake, after acquiring a controlling interest in Sprint.
For the acquisition, four banks are making arrangements to provide loans to Softbank, with Mizuho Corporate Bank shouldering ¥700 billion, Sumitomo Mitsui Banking Corp. ¥500 billion, Bank of Tokyo-Mitsubishi UFJ ¥300 billion and Deutsche Bank ¥100 billion.
Sprint Chief Executive Officer Dan Hesse will stay on as part of the deal, Softbank said.
The transactions have been approved by the boards of directors of the two firms and will need shareholder approval as well as Federal Communications Commission and other regulatory approval.
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.
Sprint may seek to bid for MetroPCS Communications Inc. or gobble up the rest of Clearwire Corp., other sources have said. The company started offering its service on a faster network using the LTE technology in five cities in July, with plans to add more this year to catch up with its larger competitors.
Clearwire’s spectrum is probably a key component and an attractive asset for Softbank, said Walt Piecyk, an analyst with BTIG LLC in New York.
“It’s expensive to build spectrum from scratch,” Piecyk said. “It’s good to have a network to put it on and a bunch of customers to pay for it.”
Sprint trails Verizon Wireless, which has LTE service in about 340 markets after starting its upgrades a year earlier.
Sprint executives irked some investors a year ago when they refused to share financial information about the sales agreement for Apple Inc.’s iPhone. This year, the stock has more than doubled as Sprint showed improved margins and bigger phone bills because of increased iPhone use.
Some shareholders still have lost money and may have wanted a higher price, said Kevin Smithen, an analyst with Macquarie Capital Inc. USA. “From the news reports I’ve seen, it sounds like a good deal, but not a great deal for Sprint,” he said.
Softbank, the fastest-growing Japanese cellphone provider, boosted earnings by more than sevenfold over 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&T was first to offer the iPhone in the U.S., with Verizon and Sprint adding it later.
Entering the U.S. allows Softbank to participate in a bigger market that is still growing. Handset sales in the U.S. increased to 191 million units last year from 182 million in 2007, according to data compiled by IDC.
In contrast, handset shipments declined to 38 million in Japan last year from 52 million in 2007, IDC said.
Japan’s previous largest purchase was Japan Tobacco Inc.’s $19.02 billion acquisition of the U.K.’s Gallaher Group Ltd. in 2007, according to data compiled by Bloomberg.
“Acquisition of overseas companies by a Japanese company 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.”