SoftBank Corp. (Tokyo: 9984) said Monday it will pay $20 billion for a 70 percent stake in the No. 3 U.S. telecommunications company.
Overland Park, Kan.-based Sprint Nextel, which competes against Verizon Communications Inc. (NYSE: VZ) and AT&T Inc., (NYSE: ATT.CL), needs the extra cash to regain market share in the lucrative -- and growing -- U.S. market.
"There couldn't be a better time for this infusion of cash," noting that the funds could be used to grow the business "both internally and externally," Sprint Nextel CEO Dan Hesse told the Wall Street Journal. "This is pro-competitive and pro-consumer in the U.S. because it creates a stronger No. 3. It competes with the duopoly of AT&T and Verizon. When you look at what Softbank has accomplished in Japan with the No. 3 carrier, it's something we can learn from."
While certain details are still being worked out, the boards of both companies have signed off on a transaction that would have SoftBank buy $8 billion worth of shares directly from Sprint and extend a tender offer for another $12 billion worth of the shares from existing holders, according to CNBC.
The price of the tender offer is $7.30 a share, a large premium to Sprint's current price. The stock closed at $5.73 on Friday. Given the deal's structure, it would not require a shareholder vote.
The equity being sold directly by Sprint to the Tokyo-based SoftBank includes a $3 billion convertible bond purchase that is exercisable at $5.25, according to CNBC. This portion of the deal would be completed well before the deal closes to provide funds for Sprint as it moves toward purchasing the roughly 52 percent of the Clearwire Corp. (Nasdaq: CLWR) it does not already own, CNBC reported. However, a Sprint purchase of Clearwire will not be announced Monday, CNBC said.
Sprint is trailing in mobile services against its competitors, the Verizon Wireless unit of Verizon Communications Inc. (NYSE: VZ) and AT&T Inc. (NYSE: T).
The Overland Park, Kan.-based company hasn't reported a quarterly profit in two years. Sprint also incurred heavy costs to carry the iPhone from Apple Inc. (Nasdaq: AAPL) last year. It was the last of the major carriers to carry Apple's iPhone 4S.
The deal would be SoftBank’s first telecom venture outside Japan following years of expansion within its home country. The company is banking on the hope that it can build on Sprint’s spectrum position and translate SoftBank’s success in developing long-term evolution, or LTE, wireless services from the Japanese to the U.S. market, CNBC reported. The deal is expected to close in roughly six months.
SoftBank was the pioneer corporate investor in Yahoo (Nasdaq: YHOO), the No. 3 online search engine.
Shares of SoftBank closed down ¥486, or 16.9 percent, at ¥2,395 on Friday.