Is Sprint a Risk?

Softbank’s (SFTBF.PK) proposed purchase of the U.S. wireless carrier Sprint Nextel (NYSE:S) is progressing.

Reuters reports that the Japanese wireless service provider has met with three major Japanese banks to borrow $23 billion, or 1.8 trillion yen, to finance the bid.

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While Softbank is seeking to expand beyond its sluggish home market, analysts are concerned that the deal involves too much risk. According to Reuters, one brokerage cautioned that a deal of this size could burden the company with “unacceptably high levels of debt.”

Sprint has a net debt of $15 billion and a market value of approximately $17 billion. In comparison, Softbank’s net debt amounts to $10 billion and the company is worth $40 billion.

“This deal simply appears to be driven by Masayoshi Son’s belief that Sprint Nextel is too cheap, and little more,” Societe Generale said in a client note.

Masayoshi Son, Softbank Chief Executive, is known for the risks he takes. The company grew under his leadership from a small software vendor in the early 1980s into a telecommunications company through risky acquisitions, and its proposed purchase of a 70 percent stake in Sprint could be another huge risk. However, the strength of the Japanese yen and the current restructuring within the U.S. market makes such a move appealing.

According to Reuters, Softbank may have greater aspirations than Sprint. The company may have plans to use Sprint to help it buy MetroPCS (NYSE:PCS), which agreed this month to merge with T-Mobile, a part of Deutsche Telekom (DTEGY.PK).

This proposition would cost more than $45.6 billion, or 2 trillion yen, the Nikkei newspaper reported Friday, making it the largest overseas acquisition by a Japanese firm.

The most pressing concern for analysts, is how Softbank would finance the deal.

“How Softbank will finance this deal, what this means for management structure and its finances, that’s where the market is looking right now,” Mitsushige Akino, chief fund manager of Mitsuyoshi Asset Management, told Reuters.

Softbank is now negotiating with Mizuho Financial Group Inc, Sumitomo Mitsui Financial Group and Mitsubishi UFJ Financial Group.

In Tokyo, shares of Softbank fell 17 percent on Friday in its biggest one-day decline, losing $7 billion from its market value.

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