Sprint in talks to get ‘substantial’ investment from Softbank

October 11, 2012 07:07 AM

Sprint Nextel Corp. said it’s in talks with Softbank Corp. for a “substantial” investment from the Japanese carrier, potentially shifting the balance of power in the U.S. telecommunications industry.

Softbank, Japan’s third-largest mobile-phone company, is seeking control of Overland Park, Kansas-based Sprint, according to two people familiar with the matter, who asked not to be identified because the discussions are private. The deal could involve Softbank taking a stake of as much as 75 percent of Sprint, said one of the people.

The Japanese company would provide much-needed financial support for Sprint as the U.S. third-largest carrier tries to compete with bigger rivals Verizon Wireless and AT&T Inc. Sprint would give Softbank a base for entering the U.S. market with a compatible carrier via its joint venture with Clearwire Corp., said Jennifer Fritzsche, an analyst at Wells Fargo Securities LLC.

Sprint “represents the only way for a potential new entrant to get a national presence immediately in the U.S.,” Fritzsche wrote in a report. Softbank and Clearwire use airwaves in the same frequency and the same TDD LTE variant of network technology.

Softbank is in talks to acquire the stake for more than 1.5 trillion yen ($19 billion), Japan’s Nikkei newspaper reported on its website, without saying where it got the information.

Clearwire Report

Softbank may also help Sprint buy full control of Clearwire, though no decision on that step has yet been made, one of the people said. Clearwire’s shares soared 40 percent to $1.82 at 11:17 a.m. in New York. Sprint jumped 19 percent to $5.98. Before today, the stock had more than doubled this year, giving Sprint a market value of $15.1 billion.

In a statement today confirming talks with Softbank, Sprint said it couldn’t assure a transaction would occur and didn’t provide any other details.

Softbank said on its website it won’t comment on Sprint. Mike DiGioia, a spokesman for Clearwire, also declined to comment.

Sprint is holding off on an immediate counterbid for MetroPCS Communications Inc. to gain time to scrutinize Deutsche Telekom’s planned combination with T-Mobile USA, people familiar with the situation said yesterday. Deutsche Telekom’s shares climbed 1.2 percent in 15 minutes after the Nikkei report, a sign that investors may see a Softbank-Sprint deal increasing the chances for the T-Mobile merger with MetroPCS.

First iPhone

Softbank was the first carrier in Japan to offer Apple Inc.’s iPhone, which helped it boost earnings by more than sevenfold over the past four years. The Tokyo-based company, the fastest-growing Japanese mobile-phone provider, this month agreed to pay 180 billion yen for smaller local rival, eAccess Ltd.

“It’s surprising that the company is considering M&A in the North American market,” said Shinji Moriyuki, an analyst at SMBC Nikko Securities in Tokyo. “If Softbank can use its marketing knowhow and data communications, with which the company has been successful in Japan, there will probably be synergies in North America.”

Sprint and Clearwire have struggled to catch up with the larger wireless peers in the construction of faster LTE networks. Both companies have been dependent on financing to keep up with costs. Sprint has $21 billion in outstanding long- term debt and Clearwire has $4.2 billion in total long-term borrowings.

Founded by billionaire Masayoshi Son, Softbank entered the mobile-phone business in 2006 by paying 2 trillion yen for Vodafone Group Plc’s Japanese unit.

Bloomberg News

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