Sprint Selling Large Stake To SoftBank
October 15, 2012

Coming To America: SoftBank Buys 70 Percent Of Sprint

Michael Harper for redOrbit.com — Your Universe Online

It´s official. In an early morning (for Americans) press conference, Japanese mobile carrier SoftBank announced they´d be buying 70% of Sprint for $20.1 billion, confirming rumors which surfaced late last week that SoftBank would be making a “substantial” investment in America´s third-largest carrier.

This deal not only brings a Japanese company into the American market, it´s also expected to allow Sprint to compete more aggressively with AT&T and Verizon, specifically in their 4G rollout.

The $20.1 billion breaks down thusly: $12.1 billion will be paid to all S shareholders, while $8 billion will be used as new capital for Sprint. According to Reuters, both boards have approved this deal, and Sprint´s corporate headquarters will remain in Overland Park, Kansas with Dan Hesse remaining as CEO.

Should Sprint find a better deal elsewhere or SoftBank find themselves unable to raise the appropriate funds, either company has agreed to pay the other a $600 million break-up fee.

In a webcast which was broadcast live as the two CEOs made the announcement, Son said his company was betting on the large growth in America to give SoftBank an extra edge in the ultra-competitive Japanese market. Currently, SoftBank is also the third largest carrier in Japan.

“It could be safe if you do nothing, and our challenge in the US 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.”

“The smartphone is becoming the core of mobile communication,” said Son, pointing out that not only are Americans paying more each month on their cell phone bills than Japan, but our service is often slower as well. Son called the AT&T and Verizon-dominated market a “duopoly,” saying there is a compelling opportunity for his company here.

Dan Hesse also believes this partnership could present some interesting opportunities in the American marketplace, giving Sprint the power to become an even more viable competitor.

“This is pro-competitive and pro-consumer in the US 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,” said Hesse, addressing the press in the early morning announcement in Japan.

Hesse also took the time to once again point out the progress the company has made since he took over in 2007. For instance, while 70% of Sprint´s customers have pre-paid plans, they make up some 90% of the company´s revenue. These kind of numbers, in combination with Sprint´s percentage of customer gains in the double digits, are what make the Overland Park company a good way to enter the American market for Japanese SoftBank.

Some analysts worry, however, that such a deal could imply to investors that Sprint is nearly two-thirds more valuable than it really is. Furthermore, shortly after the announcement, shares in SoftBank fell by more than 8%. According to Reuters, SoftBank shares have lost more than a fifth of their value since rumors of such a deal began circulating last week.

One analyst, a Mr. Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities, says the company has seen this sort of reaction before:

“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.”

If all goes according to plan, this deal should be final mid-2013.