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Softbank to buy 70% of Sprint for $20 billion

Discussion in 'Wireless News' started by ComicalMoodyDan, Oct 15, 2012.

  1. ComicalMoodyDan

    ComicalMoodyDan Gold Senior Member
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    Softbank to buy 70% of Sprint for $20 billion
    Roger Yu, USA TODAY
    8:42AM EDT October 15. 2012 -

    Softbank, a Japanese wireless carrier, said Monday it agreed acquire 70% of Sprint Nextel for $20.1 billion, a deal that financially strengthens the third-largest wireless carrier in the U.S.

    More importantly, the deal deepens foreign investment in the U.S. wireless industry. SoftBank will own about 70% of a newly created entity New Sprint, and current Sprint (S) shareholder will own the remaining shares.

    The acquisition calls for $12.1 billion to be distributed to Sprint stockholders and $8 billion of new capital to be given to Sprint. About 55% of current Sprint shares will be exchanged for $7.30 per share in cash, and the remaining shares will convert into shares of a new publicly traded entity, New Sprint.

    In pre-market trading Monday, shares of Sprint jumped nearly 3%, or 16 cents, to $5.89 a piece after falling 52 cents to close Friday at $5.73, when Sprint confirmed it was in talks with Softbank about an acquisition.

    The deal, which has been approved by the boards of directors of both SoftBank and Sprint, will require regulatory approvals and is expected to close in mid-2013.

    Sprint Nextel has fallen behind Verizon Wireless and AT&T, the two largest wireless carriers in the U.S., in customer subscriptions and expanding a fast data network called 4G Long-Term Evolution (LTE).

    Softbank says $8 billion of capital will be spent to improve Sprint's network and strengthen its balance sheet. The Tokyo-based company says it will also collaborate with Sprint for "innovation in consumer services and applications."

    "This transaction provides an excellent opportunity for SoftBank to leverage its expertise in smartphones and next-generation high speed networks, including LTE, to drive the mobile internet revolution in one of the world's largest markets," SoftBank Chairman and CEO Masayoshi Son said in a statement.

    Capturing a share of the U.S. market would give Softbank access to valuable U.S. wireless spectrum and "bragging rights" at a relative bargain, says Roger Entner, an analyst at Recon Analytics. "They think they can bring a fresh approach to the U.S. and be successful with it," he says.

    While it faces regulatory scrutiny and intense competitive pressures in the U.S., Softbank is buying Sprint at an ideal time, Entner says.

    Sprint merged with competitor Nextel in 2005 and the combined company struggled for years to integrate operations. With integration issues mostly resolved, Sprint Nextel also stopped losing customers and began addressing customer service, Entner says.

    The carrier also started selling the popular Apple iPhone last year, a much-needed change in its product lineup that has spurred sales. "What Softbank sees is that most of Sprint's problems have been solved," Entner says.

    Sprint also owns a 48% stake in wholesale wireless carrier Clearwire, which has its own wireless spectrum. The deal with Softbank "does not require Sprint to take any actions involving Clearwire," Sprint says.

    "Sprint is clearly undervalued," Entner says. "The spectrum that Sprint owns is worth more than the market (capitalization of the company)."

    Given that Sprint isn't merging with another U.S. carrier and the existing prevalence of foreign ownership in the U.S. wireless industry, U.S. regulators likely will approve the deal, says Marcus Shaw, an analyst at Height Analytics. "There's not a ton of regulatory risk, but it's not a lay-up," he says.

    Some regulatory concern may be raised since the combined amount of spectrum owned by Sprint and Clearwire is the largest in the U.S., Shaw says. But airwaves Clearwire owns are considered to be weaker in coverage.

    Deutsche Telekom bought VoiceStream in 2000 to form T-Mobile USA. But the German company said earlier this month that it would merge its T-Mobile USA unit with MetroPCS Communications.

    After Softbank's deal closes, Sprint's headquarters will continue to be based in Overland Park, Kan. New Sprint will have a 10-member board of directors, including at least three members of Sprint's current board of directors. Sprint's current CEO Dan Hesse will lead New Sprint and serve as a board member.

    SoftBank says it'll invest $3.1 billion in a newly-issued Sprint convertible senior bond following the announcement of the acquisition. The convertible bond will have a 7-year term and 1% coupon rate, and subject to regulatory approval, will convert into Sprint common stock at $5.25 per share. Immediately prior to the merger, the bond will be converted into shares of Sprint, which becomes a wholly owned subsidiary of New Sprint.

    Following Sprint stockholder and regulatory approval, SoftBank will capitalize New Sprint with an additional $17 billion, and New Sprint becomes a publicly traded company.

    Of the $17 billion SoftBank investment, $4.9 billion will be used to buy newly issued common shares of New Sprint at $5.25 per share. The remaining $12.1 billion will be distributed to Sprint stockholders in exchange for about 55% of currently outstanding shares. The other 45% of outstanding shares will convert into shares of New Sprint.

    Softbank to buy 70% of Sprint for $20 billion

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