Business / Corporate

SoftBank has a big Sprint problem on its hands if T-Mobile takeover falls through

Bloomberg

No one has more riding on Sprint Corp.’s $26.5 billion sale to T-Mobile US Inc. than SoftBank Group and its founder, Masayoshi Son.

Sprint has been going broke for more than a decade, and the wireless carrier’s executives have told regulators the company faces “serious challenges” if the takeover by T-Mobile is blocked. With a $19 billion stake in Sprint, SoftBank will bear the brunt of the fallout if the deal collapses.

“It would be a test of SoftBank’s willingness to save Sprint,” said Amy Yong, a Macquarie analyst. “The ownership stake is so high they’d probably look to save it, but plan B isn’t obvious or very attractive.”

If it’s forced to absorb Sprint and the carrier’s $39 billion debt load, Tokyo-based SoftBank and Son may have to rethink other, higher-profile ventures or sell assets, analysts say. They may also have to revisit the M&A circuit, where potential Sprint buyers have been less than enthusiastic. The carrier was due to release its financial results after Tuesday’s close of markets.

SoftBank “continues to believe the deal will be approved,” according to an emailed statement. Sprint declined to comment.

A week ago, the companies extended the expiration of the deal agreement by three months, to July 29, as reviews by the U.S. Justice Department and Federal Communications Commission continue. Analysts have started lowering the odds for approval. Last week, Raymond James analysts cut the chances to 55 percent from 80 percent.

If the deal falls through, a new agreement with a new partner for Sprint would be the best option for SoftBank, but circumstances have changed over the past year for the usual list of candidates. Dish Network Corp. has been a Sprint suitor in the past but recently started building its own wireless network. Both Comcast Corp. and Charter Communications Inc. have started selling wireless service using Verizon Communications Inc.’s network. It’s not clear if either company wants to own a network.

“The natural will be the cable companies, but they’ve not shown much appetite for a full-blown merger,” said Chetan Sharma, a wireless industry consultant. “They will try to go through a sales process or restructure.”

Sprint Executive Chairman Marcelo Claure — together with Son, SoftBank’s chairman — led the carrier through a three-year go-for-broke recovery effort. Using steep price cuts, Sprint stopped a mass subscriber exodus. The company, based in Overland Park, Kansas, also borrowed billions of dollars, using airwave licenses and network equipment as collateral. The goal was to stabilize the business for a deal.

It took three tries, but Son finally got T-Mobile parent Deutsche Telekom AG to agree to a takeover. The combined company, they assert, will have enough scale and resources to compete with larger rivals Verizon and AT&T Inc. — and build a new 5G network that offers a fresh menu of wireless services.

Critics of the deal, federal regulators and some state attorneys general, are concerned that if the wireless industry’s two most-aggressive price-cutters are reduced to one, consumers will pay more and see less innovation. Sprint and T-Mobile executives are still fighting for approval, with Sprint casting it as a matter of survival.

Future 5G services underpin their case. Sprint’s efforts to survive came at the cost of needed network spending. And without the T-Mobile merger, the No. 4 U.S. wireless carrier risks being left behind. Not lost on industry observers is the fact that Sprint owns the largest supply of midrange airwaves in the U.S., a key component of any coast-to-coast 5G network and a valuable asset trapped in a cash-constrained company.

Claure has told regulators and lawmakers that losses totaling $25 billion over the past decade have left Sprint critically wounded. Without Bellevue, Washington-based T-Mobile, there is “no obvious path to solve key business challenges,” Sprint said in a filing.

Son has said he always held the combination of Sprint and T-Mobile as central to his U.S. wireless strategy.

But an even bigger worry for Sprint now may be that SoftBank’s founder has moved on. Son, the second-richest person in Japan and the largest SoftBank shareholder, is consumed by multibillion-dollar projects like the Vision Fund and focused on a goal of raising a new $100 billion fund every couple years. His commitment to Sprint is fading, analysts say, even though his company holds an 84 percent stake.

“Masa Son has lost interest in being a wireless carrier,” said Roger Entner, an analyst with Recon Analytics LLC. “You can see that in him selling off part of SoftBank’s wireless operations in Japan, his underinvesting in the U.S. and trying to sell Sprint to T-Mobile. So the problem is significantly beyond money.”

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