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Sprinting Towards Success? SoftBank’s Investment in the US Market

Posted By Dominick Severance, Jan 18, 2013

On October 15 Sprint announced in a press release on its website that Softbank, a Japanese telecommunications company, will acquire a 70% stake in the US based Sprint for $20 billion. 55% of Sprint stockholders will receive $12.1 billion in cash, a figure that represents a purchase of approximately 55% of current Sprint shares at a 30% premium. The remaining 45% of shareholders will get a 30% ownership of the newly capitalized Sprint. Sprint will receive $8 billion in cash, which it plans on using to alleviate its debt burden and expand its network in the US. For instance, Sprint immediately bought Clearwire, a telecom company with an enviable treasure trove of US spectrum compatible with SoftBank’s LTE network but not Sprint’s.

The fact that SoftBank is only acquiring a 70% stake in Sprint is interesting. Section 310 of the Communications Act of 1934 has generally been interpreted as prohibiting foreign corporations from owning US spectrum. By buying only 70% of the Sprint as opposed to the entire company, Sprint can still hold the licenses without running afoul of the Act. In this manner, SoftBank can now enjoy control over both Sprint without running afoul of US law.

This deal comes in the face of T-Mobile’s announcement on October 3 that it will be merging with MetroPCS. While Sprint is the number three mobile company in the US, T-Mobile is number four and Metro PCS is number five. On October 21, the CEO of Sprint, Daniel Hesse, said that a merger between Sprint and T-Mobile was not out of the question down the road after SoftBank finished the acquisition and Sprint finished its LTE roll out. Hesse then went on to say that he is confident that regulators will approve of SoftBank’s acquisition of Sprint as the new Sprint will be a stronger competitor against the current Verizon and AT&T duopoly that currently exists in the US. Both AT&T and Verizon have over 100 million subscribers compared to Sprint’s roughly 50 million and T-Mobile’s 30 million.

Sprint has been struggling lately in the US market. Hopefully with Softbank’s acquisition Sprint is now on the road to success.

Source (Sprint.com): http://newsroom.sprint.com/article_display.cfm?article_id=2420&question_box=softbank&id16=softbank

Source (theverge.com): http://www.theverge.com/2012/10/14/3503246/softbank-buys-sprint-20-billion;  http://www.theverge.com/2012/10/18/3520500/sprint-majority-stake-clearwire/in/3285297

Source (seekingalpha.com): http://seekingalpha.com/article/947191-sprint-and-softbank-the-good-the-bad-and-the-indifferent

Source (Cnet): http://news.cnet.com/8301-1035_3-57559549-94/sprint-to-buy-out-clearwire-why-it-matters-faq/?part=rss&subj=news&tag=title