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SoftBank goes back to square one

by Megumi Iizuka

Kyodo

Investors are waiting for SoftBank Corp. to revise its global growth strategy after Chief Executive Officer Masayoshi Son’s plan to challenge the two leaders in the U.S. market took a hit when its bid to acquire T-Mobile U.S. Inc. via new subsidiary Sprint Corp. was apparently foiled by American antitrust concerns.

Analysts said market players are closely watching to see how SoftBank will shore up the business of the third-largest U.S. mobile carrier, acquired in July last year for $21.6 billion, without the No. 4 player.

Others said SoftBank dropped out of the bidding because it might be considering better options to expand through mergers and acquisitions outside the field of telecommunications.

Although Son denied officially announcing the deal and declined to comment on the reports, he has repeatedly said the duopoly in the U.S. market represented by Verizon Wireless and AT&T Inc. is undesirable, and showed he is eager to expand the market and compete against them. Each of the two leaders have about twice as many customers as Sprint or T-Mobile.

Over the past several months, there were reports that Germany’s Deutsche Telekom AG, the parent of T-Mobile, had accepted SoftBank’s bid and that Sprint would pay around $40 per share.

But to industry watchers’ surprise, reports citing sources abruptly emerged to say that SoftBank was suspending negotiations on the buyout due to difficulty gaining approval from U.S. regulators, who fear the deal will overly reduce competition in the market.

In reaction, SoftBank’s shares tumbled 3.5 percent in Tokyo Wednesday, raising concerns about Sprint, which may have to shoulder the huge cost of investing in a new communications infrastructure.

Tsutomu Yamada, market analyst at kabu.com Securities Co., said the reports elicited a sense of disappointment.

“Masayoshi Son’s expansion dream in the United States fell apart,” he said

Yamada said Softbank needs to come up with an alternative way of raising subscribers and improve Sprint’s services, which lag its rivals in developing high-speed communications infrastructure.

On Friday, Son said the first priority for the time being will be to improve Sprint’s business independently by cutting costs and waging a price war.

How he will do that remains unclear.

Yamada said investors are pinning their hopes on new measures from incoming Sprint CEO Marcelo Claure, the founder of Brightstar Corp., who was appointed to replace Dan Hesse.

While some still think the suspension of the buyout talks is temporary and could resume at any moment, others say that is unlikely because the company will need a very good reason to fix what U.S. regulators are opposing.

In addition, the acquisition of T-Mobile seems to have become more complicated. French telecommunications provider Iliad S.A. has offered T-Mobile $15 billion in cash for a majority stake, though the offer was reportedly rejected.

U.S. satellite TV provider Dish Network Corp., which challenged SoftBank’s bid for Sprint last year, is also apparently interested in T-Mobile.

Although SoftBank has seemingly been dealt a blow, some analysts said this is preferable to spending a lot of time and a huge amount of cash on it.

“Giving up the (T-Mobile buyout) bid was actually good in the end,” said Satoru Kikuchi, senior analyst at SMBC Nikko Securities Inc. “This could be an opportunity to think about a global business expansion in a different way from the past.”

He said one reason for the quick suspension of negotiations with T-Mobile could be the emergence of new targets that mesh with Softbank’s growth plan.

“We see a wide range of promising fields for acquisitions, including media, news and information distribution, entertainment, SNS (social networking services), e-commerce, personnel services, robots and alternative energy,” said Kikuchi.

SoftBank has actually been acquiring gaming companies and developing a humanoid robot on top of its main communications businesses as Son insists the company aspires to become one of the largest in the world.

“I believe chances lie in various places,” said Son. “SoftBank will expand its business scope further in overseas markets.”