Softbank is in talks to buy about $12 billion of existing Sprint shares at a premium and $8 billion in newly issued stock, said three people familiar with the matter, who spoke on condition of anonymity because the negotiations are private. At $20 billion, the deal would be the biggest publicly announced outbound acquisition by a Japanese company since at least 2000, according to data compiled by Bloomberg.
A deal will help billionaire Masayoshi Son’s Softbank to start operations in the U.S. after handset shipments tumbled 27 percent in Japan over the past five years. With the investment, Sprint can fund a faster expansion of its 4G wireless network, pay down debt, or make more acquisitions aimed at challenging bigger competitors Verizon Wireless and AT&T Inc. (T)
“Sprint’s earnings are hitting the bottom and it will probably turn to an improvement stage as it starts offering more LTE service,” said Hitoshi Hayakawa, a Credit Suisse Group AG analyst in Tokyo, referring to Long-Term Evolution technology. That’s similar to what happened after Softbank acquired Vodafone Japan in 2006, he said.
Sprint, based in Overland Park, Kansas, said in a statement distributed through Business Wire, it will hold a special webcast at 4 a.m. Eastern Time. It didn’t elaborate. Softbank said it will meet the press at 5 p.m. Japan time.
Softbank may announce the deal as early as this afternoon in Japan, the Nikkei reported.
The talks involve the Tokyo-based company buying existing shares at $7.30 apiece, the people said. The new Sprint securities include $5 billion of common shares and $3 billion of convertible securities with a conversion price of $5.25 a share, they said.
The sides are still negotiating and the final terms may change, and it’s also possible no agreement will be reached, the people said. Scott Sloat, a spokesman for Overland Park, Kansas-based Sprint, wasn’t immediately available for comment. Softbank is still in discussions and nothing has been decided, Makiko Ariyama, a company spokeswoman said by phone today.
The terms of the deal were reported yesterday by CNBC.
Softbank shares tumbled 7.1 percent to 2,224 yen as of 10:59 a.m. in Tokyo trading, extending a record 17 percent slump on Oct.12. Son controls 20.92 percent of the mobile-phone operator, which was the first to offer Apple Inc.’s iPhone in Japan. Sprint fell 0.5 percent to $5.73 in New York trading Oct. 12.
Sprint Chief Executive Officer Dan Hesse would stay as part of the deal, the people said. The transaction would need shareholder approval, according to two of the people.
Hesse, who turns 59 this week, has been working to fix the situation he inherited five years ago after the $36 billion purchase of Nextel.
During Hesse’s tenure, 7.7 million contract customers left Sprint after a struggle to integrate the two companies led to complaints about network quality. Sprint ended up writing off about $30 billion, or 80 percent of the purchase price.
Sprint may seek to bid for MetroPCS Communications Inc. or gobble up the rest of Clearwire Corp. (CLWR), people familiar with the matter have said. The company started offering its service on a faster network using the LTE technology in five cities in July, with plans to add more this year to catch up with its larger competitors.
Clearwire’s spectrum is probably a key component and an attractive asset for Softbank, said Walt Piecyk, an analyst with BTIG LLC in New York.
“It’s expensive to build spectrum from scratch,” Piecyk said. “It’s good to have a network to put it on and a bunch of customers to pay for it.”
Sprint trails Verizon Wireless, which has LTE service in about 340 markets after starting its upgrades a year earlier.
Sprint executives irked some investors a year ago when they refused to share financial information about the sales agreement for Apple Inc.’s iPhone. This year, the stock has more than doubled as Sprint showed improved margins and bigger phone bills because of increased iPhone use.
Some shareholders still have lost money and may have wanted a higher price, said Kevin Smithen, an analyst with Macquarie Capital Inc. USA. “From the news reports I’ve seen, it sounds like a good deal, but not a great deal for Sprint,” he said.
Softbank (9984), the fastest-growing Japanese mobile-phone provider, boosted earnings by more than sevenfold over the past four years with the popularity of the iPhone.
Entering the U.S. allows Softbank to participate in a bigger market that’s still growing. Mobile-handset sales in the U.S. increased to 191 million units last year from 182 million units in 2007, according to data compiled by IDC.
In contrast, handset shipments declined to 38 million units in Japan last year from 52 million in 2007, according to IDC.
Japan’s previous largest purchase was Japan Tobacco Inc.’s $19.02 billion acquisition of the U.K.’s Gallaher Group Ltd. in 2007, according to data compiled by Bloomberg.
“Acquisition of overseas companies by a Japanese company have never been a big success,” said Tomoaki Kawasaki, a Tokyo-based analyst at Iwai Cosmo Securities. “That shows there are always risks in making big overseas acquisitions for a Japanese company.”