Sprint Nextel Corp. (S) (S), whose investors backed a takeover by SoftBank Corp. (9984) yesterday after an eight-month fight, is now preparing to use the firepower of its soon-to-be parent company to target Verizon Wireless and AT&T Inc. (T) (T)
The company stands to get about $5 billion from Tokyo-based SoftBank to help bolster its network and make acquisitions. While Sprint (S) would have received more cash under a previous agreement that was changed to increase the payout to investors, the long-struggling company now has the wherewithal to better challenge its larger rivals.
“Now that the drama of the battle for Sprint has ended, SoftBank can focus on building a better wireless-data network that is needed to compete with AT&T and Verizon,” said Walt Piecyk, an analyst at BTIG LLC in New York.
Sprint, a distant third to Verizon and AT&T in the U.S. wireless market, is counting on a speedy new LTE network to win over customers and bring service to a range of devices. For SoftBank, a Japanese carrier with global ambitions, the idea is to apply its expertise in building fourth-generation networks and use Sprint as the stepping stone to a mobile-phone empire.
The combined company will be the sixth-largest telecommunications company globally by revenue and the second-biggest among mobile Internet carriers, according to data compiled by Bloomberg.
Sprint shareholders overwhelmingly approved the $21.6 billion deal at a meeting yesterday, with about 98 percent of the votes cast favoring the transaction. SoftBank, which has three of the four regulatory approvals needed to do the Sprint deal, still requires a final nod from the U.S. Federal Communications Commission.
“Sprint will be in a stronger competitive position, with greater financial flexibility, increased scale and additional industry knowledge and perspective,” said Scott Sloat, a spokesman for Overland Park, Kansas-based Sprint.
Mark Siegel, a spokesman for Dallas-based AT&T, declined to comment on the threat from Sprint following the merger. Brenda Raney, a spokeswoman for Basking Ridge, New Jersey-based Verizon Wireless, also declined to comment.
Sprint shares rose 1.3 percent to $6.97 at the close in New York. The stock has gained 23 percent this year, lifted by the bidding war. SoftBank fell 0.2 percent to 5,420 yen at the close of trading in Tokyo, paring its gain this year to 73 percent.
The SoftBank takeover caps a turnaround effort for Sprint Chief Executive Officer Dan Hesse, who was hired in 2007 to fix the money-losing company after a $36 billion acquisition of Nextel -- a deal that mostly had to be written off. Sprint also didn’t get the iPhone until after AT&T and Verizon, contributing to the loss of more than 8 million monthly subscribers.
Yesterday’s shareholder decision ended a takeover contest that saw a $25.5 billion counteroffer from satellite-television provider Dish Network Corp. (DISH), a special agreement to appoint a national security representative to the company’s board and a separate clash over control of Clearwire Corp. (CLWR) -- a wireless Internet service provider half-owned by Sprint.
For SoftBank President Masayoshi Son, the 64th-richest person, the approval brings him a step closer to his aspiration of turning SoftBank into the world’s largest carrier. He will serve as chairman of Sprint after the deal closes, with SoftBank Holdings Inc. President Ron Fisher becoming vice chairman.
Sprint initially forged a deal with SoftBank in October, agreeing to sell 70 percent of the company for $20.1 billion. Dish offered $25.5 billion for Sprint in April, though its terms were structured differently and not directly comparable to SoftBank’s price. Dish also never submitted a firm enough bid to be “actionable,” Sprint said.
To seal the deal, SoftBank raised its bid to $21.6 billion for 78 percent of Sprint on June 10. The transaction also shifted more cash away from investing in Sprint’s business, an effort to sweeten the pot for shareholders.
At the time, Sprint set a June 18 deadline for Dish to respond. When the day came, the satellite company begged off, saying Sprint had “made it impracticable for Dish to submit a revised offer.” Three days later Dish abandoned its bid.
Sprint also faced a takeover contest with Dish for Clearwire, its wireless-network partner. Seeking to end a protracted bidding war, Sprint offered $5 a share for the company last week. The price was 14 percent above what Dish proposed and values the business at about $14 billion. Clearwire shareholders are scheduled to vote July 8 on the bid.
The idea is to use Clearwire’s airwaves that can enhance Sprint’s new network, providing enough spectrum to handle a boom in wireless data. SoftBank has a history of constructing 4G networks, improving profit margins and selling a range of services -- something it demonstrated with its acquisition of Vodafone Group Plc (VOD)’s Japanese operations, said David Heger, an analyst at Edward Jones in St. Louis.
“SoftBank will bring a cash infusion that will help Sprint in terms of building out its 4G LTE network, which is going to be key for Sprint in terms of competitiveness,” he said.
Eventually Sprint may be able to switch to a tiered plan for data use, allowing it to charge more to customers who need a lot of bandwidth, Heger said. For now, the company probably has to continue with its unlimited plans in an effort to get more subscribers, he said. Its new owner may have other ideas for fixing the business as well, Heger said.
“SoftBank has had a good track record,” he said.
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