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Sprint, Japan's Softbank discuss major investment

| Thursday, Oct. 11, 2012, 5:50 p.m.

Sprint Nextel Corp. said it's in talks with Softbank Corp. for a “substantial” investment from the Japanese carrier, potentially shifting the balance of power in the U.S. telecommunications industry.

Softbank, Japan's third-largest mobile-phone company, is seeking control of Sprint, based in Overland Park, Kan., according to two people familiar with the matter, who asked not to be identified because the discussions are private. Softbank, based in Tokyo, also plans to buy MetroPCS Communications Inc. through Sprint, Japan's Nikkei newspaper reported.

The Japanese company would provide much-needed financial support for Sprint as the third-largest carrier in the United States tries to compete with bigger rivals Verizon Wireless and AT&T. Sprint would give Softbank a base for entering the U.S. market with a compatible carrier via its joint venture with Clearwire Corp., said Jennifer Fritzsche, an analyst at Wells Fargo.

Sprint “represents the only way for a potential new entrant to get a national presence immediately in the U.S.,” Fritzsche wrote in a report. Softbank and Clearwire, a wholesale U.S. wireless carrier that is partially owned by Sprint, use airwaves in the same frequency and the same TDD LTE variant of network technology.

Yesterday, people familiar with the situation said Sprint was holding off on an immediate counterbid for MetroPCS to gain time to scrutinize Deutsche Telekom AG's planned combination with T-Mobile USA. Nikkei earlier said Softbank is in talks to acquire the Sprint stake for more than $19 billion, without saying where it got the information.

The deal could involve Softbank taking a stake of as much as 75 percent of Sprint, said one of the people familiar with the talks. Softbank may also help Sprint buy full control of Clearwire, though no decision on that step has been made, one of the people said.

A transaction could create an operator financially strong enough to eventually bid for the assets T-Mobile USA is trying to combine with MetroPCS, said a person familiar with Softbank's plans, declining to be identified.

Clearwire soared 71 percent to $2.22 at the close in New York, while MetroPCS fell 3.3 percent to $11.64. Sprint jumped 14 percent to $5.76. The stock has more than doubled this year, giving Sprint a market value of $17.3 billion.

In a statement confirming talks with Softbank, Sprint said it couldn't assure a transaction would occur and didn't provide any other details. Softbank said on its website it won't comment on Sprint. MetroPCS also declined to comment.

Sprint and Softbank are still negotiating over price, said one of the people familiar with the matter. While a price of about $6.50 per share for Sprint has been discussed, no specific price has yet been reached, the person said.

Sprint holds 48 percent of Clearwire, based in Bellevue, Wash., which represents both its voting shares and its ownership stake, Mike DiGioia, a spokesman for Clearwire, said in an e-mail. He declined to comment on Softbank.

Softbank's investment in Sprint would include buying out some holders of publicly traded Sprint shares and supplying Sprint directly with capital, one person said. Sprint could use the capital to build its LTE network, said this person.

Sprint started service using the faster technology called LTE, or long-term evolution, in July in Atlanta, Dallas, Houston, San Antonio and Kansas City, with plans to add more this year to catch up with its larger competitors. Verizon Wireless, which had a one-year head start on the upgrades, has the service in about 340 cities.

Softbank is working with lenders on how much it will need to borrow for the deal, trying to minimize how much its credit rating may be downgraded, said one of the people familiar with the matter. Moody's Investors Service upgraded Softbank's debt to investment grade last year, and Standard & Poor's rates it two levels above investment grade after an upgrade in January. Both have junk ratings on Sprint debt.

The Japanese carrier, which has a market value of about $40 billion, may sell new shares to finance the deal, said Makoto Kikuchi, chief executive officer at Myojo Asset Management Japan Co., a Tokyo-based hedge fund advisory firm.

Softbank, the fastest-growing Japanese mobile-phone provider, was the first carrier in Japan to offer Apple Inc.'s iPhone. That helped it boost earnings by more than sevenfold during the past four years and close the gap with larger NTT DoCoMo Inc. and KDDI Corp.

Softbank may be looking toward the United States because it doesn't have as many alternatives in faster-growing developing countries, which typically limit foreign investment, said Yoshihisa Toyosaki, a Tokyo-based analyst with Architect Grand Design, an electronics research and consulting company.

“Softbank is trying to take advantage of the economic turmoil in the U.S. to buy a majority stake in a carrier,” he said. “This represents an opportunity for them.”

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