Japan-based SoftBank will acquire Sprint Nextel Corporation in a $ 20.1 billion deal.
As part of the acquisition, SoftBank will pay 12.1 billion to Sprint shareholders and extend another $ 8 billion as capital to strengthen Sprint Nextel Corporation?s balance sheet.
The transaction, approved by the boards of directors of both the companies is subject to approval by Sprint Nextel Corporation?s shareholders, customary antitrust and Federal Communications Commission and other regulatory approvals and the satisfaction or waiver of other closing conditions, including accuracy of representations and warranties.
The companies expect to close the transaction in mid-2013. Following the transaction, SoftBank will own about 70 per cent of the fully-diluted shares of New Sprint, which will own 100 per cent of the shares of Sprint Nextel Corporation.
The acquisition will enable SoftBank to establish an operating base as one of the largest mobile internet companies in the world. The combined subscriber base of the two companies will be one of the largest between the United States (US) and Japan, and the combined mobile telecom service revenue will rank third amongst global operators.
The acquisition will also help Softbank to leverage its deep expertise in smartphones and next-generation mobile networks, and its track record of success in competing in mature markets with large incumbents, to enhance Sprint?s competitiveness in the US.
The transaction will provide Sprint Nextel Corporation $ 8 billion of new capital for its mobile network, strategic investments, and balance sheet as part of its continued efforts to fortify its operating base towards future growth.
Chris Nicoll and Steve Hilton, Principal Analysts, Analysys Mason sees acquisition of Sprint Nextel Corporation by Softbank as a positive move. According to them, foreign investment in US telecoms has had a decidedly neutral result to date and while the financial investment in Sprint Nextel Corporation is significant, Sprint Nextel Corporation has significant technical and market challenges to overcome in the next 12-24 months while Softbank has added a huge international acquisition to its portfolio.
Analysts are of the view that investment of $8 billion into Sprint Nextel Corporation is a significant investment and should allow Sprint Nextel Corporation to complete not only the network vision network consolidation project on-time, but will also help it to speed up the deployment of long-term-evolution technology in the US which is needed in order to keep up with AT&T and VZW and get ahead of T-Mobile. Commenting on the future roadmap for Softbank, Nicoll and Hilton assert that the next step for Softbank is to acquire rest of Clearwire. Sprint owns 48 per cent of the WiMax-based company. The 2.5 GHz spectrum licensed by Clearwire could provide 50-100 Mbps internet service with the proper technology investments (TD-LTE). So far, funding has been a problem for Clearwire and acquiring Clearwire will turn out to be a perfect fit for Softbank?s larger corporate strategy.
As per the analysts, Sprint Nextel Corporation will gain some benefit from Softbanks? multi-technology experience, however, Sprint is nearly two times as large as Softbank so the question remains what additional experience Softbank will bring to it.
Further, Softbank is aggressively moving in its own market, having recently acquired eAccess with a total of 39 million subscribers. The company has a good track record of successful acquisitions, however, this is a multi-national investment that will bring additional complexity to Softbank?s management team. The US market is unique and requires deft regulatory handling.
According to Nicoll and Hilton, it is to be seen whether Softbank go on a Yen-infused spending spree in the USA. Softbank prides itself on being a mobile internet company and not just an operator. As such its portfolio of mobile internet assets in the US is decidedly weak. Analysys Mason anticipates that Softbank will be looking at adding more assets to its portfolio to complement the proposed acquisition of Sprint Nextel Corporation. And the possible acquisitions could include that of MMetroPCS and Clearwire.
