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TOKYO: Japanese mobile operator Softbank Corp said it will buy about 70 percent of Sprint Nextel Corp, the third-largest US carrier, for $20.1bn — 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 CEO Dan Hesse at a packed news conference in Tokyo yesterday, gives Softbank an entry into a US market that still shows growth, while Japan’s market is stagnating. It also gives Sprint the firepower to buy peers and build out its 4G network to compete better in a market dominated by AT&T and Verizon Wireless .
Analysts have long said the US telecoms industry needs consolidation, but few looked to Japan as a catalyst. Some investors worry 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 US 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 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,” he told the news conference.
“But not taking this challenge will be a bigger risk.”
Softbank said that as part of the deal it would buy $3.1bn 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 shares closed on Friday at $5.73. 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 US firm to play a bigger role in future market consolidation.
“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,” he said.
Softbank shares tumbled more than 8 percent earlier yesterday, closing down 5.3 percent at their lowest finish in five months. The stock has lost more than a fifth of its value — or $8.7bn — since news first broke late last week of the firm’s interest in Sprint.
Yesterday, 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 $15.5bn 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 realise he’s making the right decision down the road,” said Nakanishi.