The deal would make Tokyo-based SoftBank, Japan’s No. 3 mobile carrier as well as a content provider, in control of the No. 3 U.S. telecommunications carrier.
Sprint, of Overland Park, Kan., hasn’t reported a quarterly profit since 2010 and had been seeking outside assistance. Its second-quarter loss rose 60 percent to $1.37 billion, or 46 cents a share, from $874 million, or 28 cents, a year ago.
The deal will require approval from regulators on both sides of the Pacific. Pending OKs, the deal is expected to close in the middle of 2013, the companies said. There's a $600 million termination fee, which would have to be paid if it doesn't conclude.
Sprint CEO Dan Hesse, 58, will remain as head of Sprint, following a complex transaction under which SoftBank will pump cash into a new company, New Sprint, that will purchase current Sprint shares for $5.25 apiece. Later, they’ll have the option to get $7.30 for each share of New Sprint.
After trading Monday as high as $5.87, Sprint shares closed at $5.69, down 4 cents. In Tokyo, shares of SoftBank dipped 5 percent to 2,238 yen (US $28.43), bringing their loss since last week to 12 percent.
"This is a transformative transaction for Sprint that creates immediate value for our stockholders," said Hesse, who expressed confidence the deal would receive swift regulatory approvals.
SoftBank CEO Masayoshi Son, 55, said he hoped the takeover could "provide a constructive beginning toward creating a more competitive American wireless market." In Japan, Son brought SoftBank into the forefront by buying out Britain's Vodafone Group's (Nasdaq: VOD) wireless unit in 2006.
In the U.S., Vodafone owns 40 percent of Verizon Wireless, of which Verizon Communications (NYSE: VZ) owns the remainder. Verizon Wireless is the No. 1 U.S. mobile carrier 111 customers. Next is AT&T Inc. (NYSE: T), with about 105 million customers.
Shares of both Verizon and AT&T fell Monday. Verizon shares closed at $44.50, down 12 cents while AT&T shares fell 42 cents to $35.21.
Sprint has about 56 million customers, including many who came on starting last fall, when it became the last of the major U.S. carriers to offer the iPhone from Apple Inc. (Nasdaq: AAPL). Sprint had to promise to pay Apple as much as $20 billion for the new product and twice raised additional funds in the bond market.
The SoftBank-Sprint deal will require extensive financing from a trio of Japanese banks as well as Deutsche Bank (NYSE: DB).
It's also not the first time Sprint has tried a link-up with non-U.S. companies. In 1994, Sprint announced plans to sell 10 percent stakes to both Deutsche Telekom (Pink: DTEGY) and France Telecom. The acquisitions were finally approved in 1996 but a bid to create a global carrier dubbed Global One fizzled.
Both non-U.S. entities sold their investments starting in 2001.
Any bid by SoftBank will require scrutiny from the U.S. Federal Communications Commission, the Justice Department and other bodies. As well, the change of control will also be reviewed in most of the states where Sprint has operations. Its precedessor company was founded in 1899.
Sprint's hired some of the most powerful law firms for help. They include Skadden, Arps, Slate, Meagher and Flom, the New York powerhouse that specializes in mergers; Lowler, Metzger, Keeney & Logan, the Washington, D.C., that specializes in telecommunications and regulation, as well as Polsinelli Shugart, of Kansas City, Mo., for local advice.
SoftBank, meanwhile, retained Morrison & Foerster, the New York-based powerhouse that has a large presence in Japan, as its lead counsel. The firm also advises scores of technology clients including Facebook (Nasdaq: FB), the No. 1 social network site.
Other law firms hired by SoftBank include Dow Lohnes, of Washington, a major regulatory specialist; Potter Anderson Corroon, of Wilmington, Del., to advise on corporate law issues likely relating to the share swap and new company structure; and Mori Hamada & Matsumoto of Tokyo, for advice on Japanese company law.
Despite its size, SoftBank will require extensive financing to acquire control of Sprint, which has been hobbled since its ill-fated 2005 acquisition of Nextel Corp. for $36 billion.
The Japanese buyer reported cash and investments around $9.5 billion as of June 30. In order to inject $8 billion into Sprint and mount the bid to acquire control, SoftBank will tap financial markets for syndicated loans and other financings.
After SoftBank sets up New Sprint, it plans to invest $3.1 billion in a convertible senior bond that would be convertible into shares of Sprint at $5.25 apiece. Upon approval of the merger, they would become a subsidiary of New Sprint.
Then SoftBank will inject another $17 billion to acquire New Sprint, using $4.9 billion to acquire shares of the company. The remainder, $12 billion, will be distributed to current Sprint shareholders.
Terms of the syndication deals weren't announced. Sprint said its financial advisers are Citigroup Capital Markets, a unit of Citigroup (NYSE: C); Rothschild Inc. and UBS (NYSE: UBS).
Last year, AT&T's planned $39 billion acquisition of T-Mobile USA was opposed by the Justice Department, which sued AT&T on antitrust grounds. The deal collapsed and AT&T eventually paid T-Mobile, a unit of Deutsche Telekom, a $3 billion break-up fee plus an additional $1 billion for spectrum rights.
This month, Deutsche Telekom has launched a $4.9 billion bid to acquire No. 5 mobile carrier MetroPCS Communications (NYSE: PCS), of Richardson, Tex., in a deal that will also acquire extensive regulatory approval.
Meanwhile, Sprint will stil retain its 48 percent control of Clearwire Inc. (Nasdaq: CLWR), a Bellevue, Wash., which owns extensive U.S. spectrum as well as long-term evolution (LTE) technologies required to upgrade its network. Neither Sprint nor SoftBank announced plans for the company.
Shares of Clearwire jumped as much as 28 percent on Monday before easing back to $2.69, up 37 cents.