Softbank Corp. announced Monday that it will buy up to 70 percent of Sprint Nextel Corp. (NYSE:S), the third-largest wireless carrier in the U.S., for about $20.1 billion.
The deal, announced at a news conference in Tokyo on Monday by Softbank founder and CEO Masayoshi Son and Sprint CEO Dan Hesse, came as little surprise — Sprint shares jumped last week on a rumor that Softbank was considering a two-thirds purchase for $13 billion.
The acquisition will provide Softbank entry into the U.S. market, which is still growing, at a time when Japan’s market is stagnating. It will also give Sprint the funds to build its 4G network to better compete in a market dominated by AT&T (NYSE:T) and Verizon Wireless (NYSE:VZ).
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Hesse said the Softbank investment was both “pro-competitive” and “pro-consumer,” as it will help create a “stronger No. 3″ in the U.S. carrier market. “When you look at what Softbank has accomplished in Japan with the No. 3 carrier, it’s something we can learn from,” he said.
As part of the deal, Softbank will buy $3.1 billion of bonds convertible into Sprint stock at $5.25 a share, while roughly 55 percent of current Sprint shares will be exchanged for $7.30 per share in cash. Sprint shares closed Friday, the last regular day of trading before the deal was announced, at $5.73
However, Softbank investors were less enthusiastic about the deal — shares of the Softbank were down over 8 percent in Japan earlier on Monday, and closed at their lowest in 5 months, down 5.3 percent. The stock has lost more than a fifth of its value since news first broke late last week that Softbank may be considering a major stake in Sprint.
The Sprint deal is the Japanese firm’s biggest overseas acquisition ever, leading many to question whether it might be too expensive. And Son did acknowledge that the move for Sprint was risky, though he said doing nothing was riskier still.
“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,” he told the news conference in Tokyo.
Clearwire Corp. (NASDAQ:CLWR) may also be getting in on the action — shares were trading up last week on speculation that Sprint might use some of the proceeds from the Softbank deal to buy the part of Clearwire it doesn’t already own — Sprint currently holds a 48 percent stake in the company, which has high-speed infrastructure that makes it attractive to mobile carriers struggling to handle increased strain on their data networks from the rising number of smartphone users. However, on Monday, Softbank clarified that the deal did not require that Sprint take any action involving Clearwire.
With Sprint in its pocket, Japanese media are reporting that Softbank may now look to acquire smaller U.S. carrier MetroPCS (NYSE:PCS), which Sprint was previously thought to be pursuing and which earlier this month agreed to merge with T-Mobile USA, the No. 4 carrier in the U.S. and a subsidiary of Deutsche Telekom AG. Softbank’s deal with Sprint may also help the Japanese carrier get its hands on Apple’s (NASDAQ:AAPL) iPhone.