SoftBank Eyes Sprint

on Oct 13, 2012

SoftBank (TYO:9984), the Japanese wireless service provider, saw its shares shed 17 percent of their value to ¥2,395 on Friday 12 October after it confirmed it has engaged in discussions with US network operator Sprint over a possible friendly takeover.

**Softbank Beyond Japan**
Reuters reported that the Japanese company may buy 70 percent or more of Sprint Nexel Corp in a move that would turn it into a major player in the US mobile market.
As of this Friday Sprint’s market capitalization reached almost $17 billion (£10.6 billion), which means buying a controlling stake would cost SoftBank more than $10 billion (£6.2 billion) – a hefty expense and the likely reason as to why some shareholders rushed to sell their shares.

According to Keiichi Yoneshima of Barclays Capital the deal “could hurt Softbank’s balance sheet in the near term” especially if SoftBank decides to support an acquisition already planned by Sprint of its unconsolidated subsidiary Clearwire.
Back in 2006 Billionaire Masayoshi Son, founder of SoftBank, muscled his way into the mobile phone industry by buying Vodafone’s Japanese assets for ¥1.7 trillion, heavily indebting his company for several years.

The mobile operator overcame its financial woes in 2008 when it became the first Japanese carrier to support Apple’s iPhone, earning good profits on the back of the iconic smartphone. Recently SoftBank has had a hard time holding on to its domestic iPhone customers as it faced competition from a second iPhone carrier – KDDI. The company seems to be considering the option of expanding outside Japan with Sprint providing the vehicle required to enter into the highly lucrative and competitive US market.

SoftBank’s financials are in good health with the company sitting on $12 billion in cash and its net debt is about half of the projected earnings for 2012. “We would see no need for excessive concern given plentiful cash flow and a better balance sheet compared with the time of the Vodafone acquisition,” said Mr Yoneshima as quoted by the Financial Times.

Sprint, the third largest US carrier, has 56.4 million subscribers – only half of those boasted by Verizon and AT&T, each of whom have more than 100 million users in their networks. The company lags behind its two major rivals in the implementation of the Long Term Evolution (LTE) technology, now seen as a necessity for those companies determined to survive in the cutthroat competition of the US mobile market.
!m[](/uploads/story/571/thumbs/pic1_inline.png)Sprint’s shares rose by 14.34 percent to $5.76 with its stockholders eyeing SoftBank as the beefy checkbook, which would give the necessary boost to its expensive efforts to hold its own against larger competitors.
“It would make Sprint a much more viable competitor…It would firm up their ability to compete in LTE,” telecom industry analyst Berge Ayvazian said for the FT.
According to analysts Sprint might be the only option for SoftBank to enter the US mobile market and the acquisition would make it cheaper for the Japanese company to procure smartphones and other mobile devices both domestically and internationally.
Reuters mentions such a deal might have to be reviewed by the US government because it involves sensitive telecommunications networks. Overall expectations are that regulators will most likely agree on the acquisition.