Softbank Corp. said Friday it has reached an agreement with Vodafone Group PLC to buy 97.7 percent of its Japanese unit for 1.75 trillion yen in a move that will allow it to acquire Vodafone K.K.’s 15 million users and its nationwide mobile communications network.

The buyout, the largest ever for a Japanese company, is expected to be completed within two months.

The sale will transform the Internet and financial services firm into a comprehensive telecommunications company offering both fixed-line and mobile telephony, and challenges the two leaders in the domestic mobile phone business — NTT Docomo Inc. and KDDI Corp., operator of the au service.

At a joint news conference Friday with Vodafone K.K. President Bill Morrow, Softbank President and Chief Executive Officer Masayoshi Son said the deal will hopefully boost Softbank’s annual sales to 2.5 trillion yen and increase the number of users of its phone services, both fixed-line and mobile, to 26 million.

“It will be a tremendous merit for us (to acquire Vodafone) compared with starting from scratch,” said Son, who had previously considered starting a mobile phone business on his own.

Last November, Softbank, which is behind the successful Yahoo! BB broadband service, received a license from the Internal Affairs and Communications Ministry to enter the mobile phone market beginning in spring 2007.

Son said Friday that Softbank would soon hold talks with the ministry on what to do with the new license, and did not rule out the possibility of giving it up.

The Internet tycoon said his company will launch a new brand to replace Vodafone’s within six months to a year.

Vodafone, for its part, said that although it will sell off its mobile phone business, the decision does not signal a complete withdrawal from the Japanese market.

“This is not the end of Vodafone’s presence in Japan,” Arun Sarin, CEO of Vodafone Group, told the news conference by telephone from his London office.

Sarin said Softbank and Vodafone agreed to consider forming a joint venture to seek ways to cooperate in the mobile phone business in Japan in the future.

Still, the buyout proved a defeat for the Vodafone Group, the world’s biggest telephone carrier in terms of revenue, as it was forced to withdraw from the Japanese market amid tough competition from NTT Docomo and KDDI. It ventured into Japan in October 2003, purchasing what was then J-Phone Co.

Vodafone’s market share in Japan has been sliding for two years, a decline that began after it postponed the launch of third-generation services. 3G cell phones relay data at high speeds and can handle larger data files, including longer streaming video and music downloads than older technologies.

At Friday’s news conference, Son cited a number of reasons why Vodafone did not succeed in Japan, and promised his utmost to do better.

He pointed out that Vodafone’s network coverage was spotty and vowed to improve service. He also said Vodafone’s Internet content offered less variety than its competitors, NTT Docomo’s i-mode service and au’s EZ web service.

“Vodafone, at one time, focused on selling handsets from overseas manufacturers, but that (strategy) was not popular with Japanese users,” Son said, adding Softbank would not make the same mistake.

Softbank said it plans to invest about 200 billion yen a year in its mobile service for the time being, the same amount Vodafone has spent in recent years.

Friday’s agreement brought a mixed reaction from market analysts.

While there are concerns the deal may put a severe strain on Softbank’s finances due to the massive debts it will incur through the acquisition, which it is financing through a leveraged buyout, others painted a more rosy picture for the long term, saying the purchase offers synergies that will make the deal pay off.

Japan Credit Rating Agency Ltd. said Friday night it has put Softbank on credit watch with an eye toward lowering its rating for the firm.

“Because there’s a lot of debt to be incurred through the LBO, there is a high possibility for the company’s financial condition to worsen,” JCR said in a news release issued following the announcement.

But Yuki Funabashi, a credit analyst at Mizuho Securities Co., said the cost of the purchase is “reasonable,” while hailing Softbank’s efforts to map out a clear-cut business strategy for the long term.

Even though the LBO will saddle Softbank with debts worth about 1.2 trillion yen — in addition to Vodafone’s interest-bearing debts of some 300 billion yen, the Internet giant and its group companies, including Yahoo Japan Corp., have enough resources to help build on Vodafone’s existing networks and services, and thus attract more users and improve cash flow, she said.

While Funabashi expects Softbank to give the business a competitive edge in terms of content and network services, she said the key is for Softbank to provide customers with an attractive and cheaper fee system.

Meanwhile, Moody’s Investors Service Inc. gave its blessing to the deal, saying it is reviewing Softbank Corp.’s Ba3 unsecured long-term debt and issuer ratings for a possible upgrade.

“Moody’s believe that the acquisition may create a competitive integrated telecom operator that provides operational benefits to Softbank’s overall telecom business,” the U.S. rating agency said, adding that the additional financial burden “will not materially change the Softbank group’s financial leverage.”

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