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Follow Reuters Facebook Twitter RSS YouTube Read U.S. economists win Nobel for applying match-making 11:28am EDT In second debate, Obama faces challenges on key issues 14 Oct 2012 Japan's Softbank snaps up Sprint in $20 billion deal | 11:04am EDT Rolling Stones to play four gigs, Jagger hints at more 10:01am EDT Tea Party versus Agenda 21: Saving the U.S. or just irking it? 1:02am EDT Discussed 162 Democrats frustrated by Obama’s ”Big Bird” campaign turn 138 Biden and Ryan in high-stakes election debate 96 Jobless claims fall to lowest in four and a half years Sponsored Links Japan's Softbank snaps up Sprint in $20 billion deal Tweet Share this Email Print Related News Softbank near $20 billion deal for 70 percent of Sprint: source Sun, Oct 14 2012 UPDATE 2-Softbank near $20 bln deal for 70 pct of Sprint-source Sun, Oct 14 2012 Softbank might borrow $23 billion to finance Sprint bid: sources Fri, Oct 12 2012 Euro higher vs dollar on the day, lower for the week Fri, Oct 12 2012 Deals of the day -- mergers and acquisitions Fri, Oct 12 2012 Analysis & Opinion Softbank-Sprint tie-up gets bad signal from market Why we vote for liars Related Topics Tech » Deals » Global Deals Review: 2011 Q3 » Global Deals Review: 2011 Q2 » Global Deals Review » Inflows Outflows » Media » Related Video Softbank chatting with US rivals Thu, Oct 11 2012 Apple nibbles on Wall St. FACTBOX: Who is Softbank? Reuters Right Now: Sprint confirms talks with Softbank 1 of 7. Dan Hesse (R), president and CEO of the Sprint Nextel Corporation and Softbank Corp President Masayoshi Son smile during their joint news conference in Tokyo October 15, 2012. Credit: Reuters/Yuriko Nakao By Mari Saito and Tim Kelly and Nicola Leske Mon Oct 15, 2012 11:04am EDT (Reuters) Japanese mobile operator Softbank Corp said it will buy about 70 percent of Sprint Nextel Corp, the third-largest U.S. carrier, for $20.1 billion - the most a Japanese firm has spent on an overseas acquisition. The deal, announced by Softbank's billionaire founder and chief Masayoshi Son and Sprint Chief Executive Dan Hesse at a packed news conference in Tokyo on Monday, gives Softbank entry into a U.S. market that is still growing, while Japan's market is stagnating. It also gives Sprint the firepower to buy peers and build out its 4G network to compete in a market dominated by AT&T Inc and Verizon Wireless. Shares in one potential target, Clearwire Corp, surged 21 percent to $2.81 on Monday. Sprint owns 48 percent of Clearwire. While Softbank said no action was required, most analysts and investors see a Sprint-Clearwire tie-up as an inevitable consequence of the Softbank deal. One way or another, analysts have long said the U.S. telecommunications industry needs to consolidate, but few looked to Japan as a catalyst. Some investors and rating agencies worried that Softbank is biting off more than it can chew. But the 55-year-old Son, a rare risk-taker in Japan's often cautious business circles, is betting U.S. growth can offer relief from cut-throat competition in Japan's saturated mobile market. Combined, Softbank and Sprint will have 96 million users. "It could be safe if you do nothing, and our challenge in the U.S. is not going to be easy at all. We must enter a new market, one with a different culture, and we must start again from zero after all we have built," Son told the news conference. "But not taking this challenge will be a bigger risk." FIREPOWER Softbank said that as part of the deal, it will buy $3.1 billion of bonds convertible into Sprint stock at $5.25 a share, while about 55 percent of existing Sprint shares would be exchanged for $7.30 per share in cash, with the transactions to be completed by mid-2013. Sprint added 0.4 percent to $5.75 on Monday after surging last week on the first reports of a pending deal. The offer, while at a substantial premium, is still less than some observers had hoped for. A fund manager at T. Rowe Price, a top-15 Sprint shareholder, told Reuters last week he thought Sprint would be worth $10 a share in 18 months. Hesse, who will stay on as Sprint CEO, said the Softbank investment would give Sprint opportunities it hadn't had since he joined the firm in late-2007, and enable the U.S. firm to play a bigger role in future market consolidation. "This is pro-competitive and pro-consumer in the U.S. because it creates a stronger No. 3 ... it competes with the duopoly of AT&T and Verizon. When you look at what Softbank has accomplished in Japan with the No. 3 carrier, it's something we can learn from," he said. Hesse, one of the few corporate CEOs in America to star in his own company's TV commercials, also acknowledged the financial challenges Sprint has faced - which the new capital could fix quickly. "Sprint has been engaged in turnaround since 2008. We have been at a disadvantage due to our debt," he said on an investor call Monday morning. But it was not all serious, as the American took some time for a bit of levity with his Asian counterparts. At the press conference, Hesse noted it was the first time he had seen his long-time acquaintance Son with a tie on. SOFTBANK WEAKENS Softbank shares tumbled more than 8 percent on Monday before closing down 5.3 percent to their lowest finish in five months. The stock has lost more than one-fifth of its value - or $8.7 billion - since news first surfaced late last week about its interest in Sprint. On Monday, credit rating agency Moody's said it was reviewing Softbank's ratings for a possible downgrade, but some analysts said Son's gamble might pay off in the end. "It's the same (market) reaction as when Softbank said it was going to buy Vodafone a few years ago. Everyone came out and said it was far too expensive," Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities, said ahead of the announcement. Softbank bought Vodafone's Japan unit for $15.5 billion in 2006. "Son made a company worth 3 trillion yen, and now it will be worth 6 trillion yen. That's quite impressive, and I think investors will realize he's making the right decision down the road," said Nakanishi. Four banks - Mizuho Financial Group Inc, Sumitomo Mitsui Financial Group, Mitsubishi UFJ Financial GroupM and Deutsche Bank - have approved loans totaling 1.65 trillion yen ($21.1 billion) to Softbank, three sources with direct knowledge of the matter told Reuters. Sprint, which has lost money in its last 19 quarters, has net debt of about $15 billion, while Softbank has net debt of about $10 billion. Brokers have warned the deal could leave Softbank with "unacceptably high" gearing - a ratio of debt to shareholder capital. Standard & Poor's has warned the deal "may undermine Softbank's financial risk profile" and pressure its free operating cash flow for the next few years. Reflecting the concerns, Softbank's 5-year credit default swap spreads - the cost of protecting its debt against default - widened to 267/327 basis points from around 160 basis points before the deal, and yields on its yen bonds have risen sharply. NO CLEARWIRE OBLIGATION Analysts have said the Softbank acquisition of 70 percent of Sprint for $20 billion would imply the No. 3 U.S. wireless company is worth about $28.6 billion, some two-thirds more than its market capitalization at Friday's close. Sprint is going through a $7 billion upgrade of one of its networks, while closing its Nextel iDen network, which makes Softbank's capital especially useful. But the Clearwire question looms large as well. Macquarie analyst Kevin Smithen, in a note to clients, described Softbank as the "white knight" that could give Clearwire management and investors a successful exit, though he also warned the company may drive a hard bargain in negotiations. An alliance with Sprint could also give Softbank leverage when dealing with Apple Inc, helping bolster its domestic position against KDDI Corp, which also offers the iPhone in Japan, and market leader NTT Docomo, which has yet to offer the Apple smartphone. With Sprint in hand, Softbank may also look to acquire smaller U.S. carrier MetroPCS Communications Inc, Japanese media have reported. Sprint has long had an interest in MetroPCS, which earlier this month agreed to merge with T-Mobile USA, part of Deutsche Telekom AG. The Sprint deal takes outbound deals by Japanese firms to a record $75 billion this year, according to Thomson Reuters data, underscoring a strong appetite for overseas assets seemingly unaffected by signs of slowing global growth. This is not the first Japanese foray into telecoms overseas. NTT Docomo racked up big losses after a string of failed investments in names like AT&T Wireless and Taiwan mobile operator KG Telecom in the late 1990s and early 2000s. Raine Group LLC, a boutique merchant bank focused on the technology, media and telecoms sector, and Mizuho Securities were lead financial advisers to Softbank. ($1 = 78.3550 Japanese yen) (Writing by Linda Sieg and Ben Berkowitz; Editing by Jeffrey Benkoe) Tech Deals Global Deals Review: 2011 Q3 Global Deals Review: 2011 Q2 Global Deals Review Inflows Outflows Media Related Quotes and News Company Price Related News Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (7) Gabenuggs wrote: Edition: U.S. Africa Arabic Argentina Brazil Canada China France Germany India Italy Japan Latin America Mexico Russia Spain United Kingdom Back to top Reuters.com Business Markets World Politics Technology Opinion Money Pictures Videos Site Index Legal Bankruptcy Law California Legal New York Legal Securities Law Support & Contact Support Corrections Connect with Reuters Twitter Facebook LinkedIn RSS Podcast Newsletters Mobile About Privacy Policy Terms of Use AdChoices Copyright Our Flagship financial information platform incorporating Reuters Insider An ultra-low latency infrastructure for electronic trading and data distribution A connected approach to governance, risk and compliance Our next generation legal research platform Our global tax workstation Thomsonreuters.com About Thomson Reuters Investor Relations Careers Contact Us Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests. NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.

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