Japanese firm SoftBank to buy 70% of Sprint for $20.1 billion

One of Japan’s largest wireless carriers is spending $20.1 billion to gain a foothold in one of the world’s biggest and most lucrative mobile markets.

SoftBank Corp., Japan’s third-largest carrier, is taking a 70% stake in struggling U.S. carrier Sprint Nextel Corp. It would mark the largest-ever overseas acquisition by a Japanese company.

The deal, pending regulatory approval, would give Sprint a much-needed financial boost. Under the agreement, Sprint would get $8 billion to pay down debt and build out its high-speed LTE network so it could better compete with its bigger rivals, Verizon Wireless and AT&T; Inc.

Beyond an expected expansion of the high-speed network coverage, Sprint customers may not see an immediate difference, analysts said. In September, Sprint launched 4G LTE in 24 cities and planned to make the service available in more than 100 cities in coming months.

Yet to be determined is how much of an effect the deal would have on a company that continues to struggle in a market that is lucrative but is seeing little growth.

The deal could give Sprint more of a fighting chance as rivals get bigger. The Overland Park, Kan., company has been left behind in the industry’s consolidation wave.

Last week, Deutsche Telekom’s T-Mobile and MetroPCS agreed to merge in a deal that, if approved, would make T-Mobile, the nation’s fourth-largest carrier, even bigger. The marriage came after T-Mobile’s $39-billion attempt to combine with AT&T; was dropped amid antitrust worries.

It will take more than a stake in Sprint for SoftBank to make inroads against rivals Verizon and AT&T;, said Kenneth L. Dulaney, an analyst at Gartner Inc. But the deal appears to be a preliminary vote of confidence in the prospects for Sprint, a company that has struggled since its 2005 merger with Nextel, he said.

“Sprint for a long time was kind of a wandering in the desert,� Delaney said. “So many of their grand experiments didn’t go anywhere. Now that they’re firmly working on LTE and have good voice service, they’re in better shape for growth.�

SoftBank’s investment will create smaller waves than an outright merger, analysts said. Although a change in controlling interest could entail a major realignment of Sprint’s business, analysts don’t expect that to happen.

“So we have a different owner, and the owner has a little bit more money,� said Todd Rethemeier of Hudson Square Research. “But Sprint is still struggling. They’re not completely out of the woods.�

Whether the transaction changes the U.S. telecom landscape may largely hinge on what, if any, moves SoftBank will make with Clearwire Corp., a wireless broadband company in which Sprint holds a 48% stake, industry analyst Charles Golvin said.

The SoftBank-Sprint deal doesn’t include provisions for Clearwire. Sprint wouldn’t comment on its plans for the company. However, an extra $8 billion leaves Sprint with enough money to buy a larger stake in Clearwire.

“Even if Sprint has the money from SoftBank to finish their network conversion and buildup, their LTE service is going to be somewhat inferior to their competitors because they only have a limited amount of spectrum,� Golvin said.

The marriage between SoftBank and Sprint may seem an odd one to some people, Golvin said. But both companies have a history of innovation and market-defying decisions: Under Chief Executive Masayoshi Son, SoftBank became the first company in Japan to offer the iPhone. In 2003, Sprint became the first U.S. company to offer unlimited data plans.

“There’s sort of a similar behavior and mind-set among those companies,� Golvin said. “They’re somewhat simpatico in terms of their operations.�

The added financial clout from SoftBank’s investment could also give Sprint more pricing power when buying equipment from vendors, Golvin said. AT&T; currently buys twice as much network gear and equipment.

Before the SoftBank-Sprint deal, the biggest overseas acquisition by a Japanese company was Japan Tobacco Inc.’s purchase of Gallaher Group of Great Britain in 2007 for about $19 billion, according to the Associated Press.

The deal would leave three of the four national U.S. wireless companies with substantial foreign ownership. Vodafone Group of Britain owns 45% of Verizon Wireless and Deutsche Telekom of Germany owns T-Mobile USA outright.

The deal has been approved by the boards of both companies, SoftBank said Monday, but is still awaiting approval from regulators and Sprint shareholders. The companies expect the deal to close in mid-2013.

Sprint Chief Executive Dan Hesse will stay in his position and will join a newly formed 10-person board of directors, at least three of whom will be from Sprint’s board.

The $8 billion that Sprint will get will come from SoftBank’s purchase of newly issued Sprint stock worth about $5.25 a share. SoftBank will also pay $12.1 billion to buy existing stock from investors at $7.30 a share.

Sprint shares fell 4 cents Monday to $5.69.

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