Japanese mobile operator Softbank Corp has said it will buy up to 70% in Sprint Nextel Corp, the third-largest US carrier, for $21.1bn (13bn) the most a Japanese firm has spent on an overseas acquisition.

The deal, announced jointly by Softbank’s billionaire founder and chief, Masayoshi Son, and the Sprint CEO, Dan Hesse, at a news briefing in Tokyo, will provide entry into a US market that still shows growth, while Softbank’s home market is stagnating.

It will also give Sprint the firepower to buy peers and strengthen its 4G network to compete better in a US wireless market dominated by AT&T and Verizon Wireless, analysts have said.

While US analysts have long said the telecoms industry needs consolidation, few looked to Japan as a catalyst. But Son, known for his risk-taking, is betting that US growth can offer relief from cut-throat competition for subscribers in Japan’s saturated mobile market.

Combined, Softbank and Sprint will have 96 million users.

Softbank said as part of the deal it would buy $3.1bn of bonds convertible into Sprint stock at $5.25 a share. Sprint shares closed on Friday at $5.73.

Softbank shares fell more than 8% earlier on Monday, and closed at their lowest in five months, down 5.3%. 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. Investors are concerned Son may be offering too much to enter the US telecommunications market.

“There is always a risk when you face a big challenge,” Son said at the briefing. “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. But not taking this challenge will be a bigger risk.”

Four banks have approved loans totalling 1.65tn yen ($21.1bn) to Softbank, sources told Reuters earlier on Monday. Mizuho Financial Group Inc, Sumitomo Mitsui Financial Group, Mitsubishi UFJ Financial Group and Deutsche Bank submitted a commitment letter to Softbank promising the loans on Monday.

Sprint, which has lost money in all of the last 19 quarters, has net debt of about $15bn, while Softbank has net debt of about $10bn. Brokers have warned the deal could leave Softbank with “unacceptably high” gearing, a ratio of its debt to shareholder capital. Standard & Poor’s has warned the deal “may undermine Softbank’s financial risk profile” and would pressure its free operating cash flow for at least the next few years.

The companies said Hesse would remain CEO of Sprint.

“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 a 2006 deal that propelled the firm into the mobile carrier business.

“Son made a company worth 3tn yen, and now it will be worth 6tn yen. That’s quite impressive, and I think investors will realise he’s making the right decision down the road,” said Nakanishi.

Analysts have said Softbank buying a 70% stake in Sprint for $20bn would imply the No 3 US wireless company was worth about $28.6bn, two-thirds greater than its market capitalisation at Friday’s close.

Sprint, which is going through a $7bn upgrade of one of its networks, while closing its Nextel iDen network, could use some of the proceeds to buy the part of Clearwire Corp it doesn’t already own, analysts have said.

Clearwire has high-speed infrastructure attractive to mobile carriers struggling with the increase in data due to the rising numbers of smartphone users. Shares in Clearwire, 48%-owned by Sprint, soared on Friday.

An alliance with Sprint could also give Softbank leverage when dealing with Apple, helping bolster its domestic position against KDDI Corp, which also offers the iPhone in Japan, and market leader NTT Docomo, which is yet to offer the Apple smartphone.

With Sprint in hand, Softbank may also look to acquire smaller US carrier MetroPCS Communications, Japanese media have reported. Sprint has had a long interest in MetroPCS, which earlier this month agreed to merge with T-Mobile USA, part of Deutsche Telekom AG.

The Sprint deal takes outbound deals by Japanese firms to a record $75bn this year, Thomson Reuters data shows, underscoring a strong appetite for overseas assets seemingly unaffected by signs of slowing global growth.

This is not the first Japanese foray into telecoms overseas. NTT Docomo racked up big losses after a string of failed investments in names such as AT&T Wireless and Taiwan mobile operator KG Telecom in the late 1990s and early 2000s.

Raine Group LLC and Mizuho Securities were lead financial advisers to Softbank.

From: guardian.co.uk – Read more