The day after Sprint Nextel confirmed talks about a potential investment by Softbank in the US telco, observers and media are focussing on questions about deal structure, financing, and the wider implications of a potential transaction.
With reference…
The day after Sprint Nextel confirmed talks about a potential investment by Softbank in the US telco, observers and media are focussing on questions about deal structure, financing, and the wider implications of a potential transaction.
With reference to sources with direct knowledge of the matter, Reuters reported that Softbank is seeking Y1.8trn (US$23bn) in financing from Japanese banks Mizuho, Sumitomo Mitsui Financial Group and Mitsubishi UFJ.
In a separate article, the newswire suggested Softbank may also finance the deal through issuing new Sprint shares, along with making a tender offer for existing shares. This was one of the options being discussed, an unnamed source said.
It is unclear exactly how much of Sprint the Japanese group may seek to buy, but a figure of 70% has been widely reported. Sprint’s current market cap fluctuates around the US$17bn mark.
Grander ambitions
Other reports suggested that Softbank had even bigger plans for the US market, with Japanese newspaper the Nikkei claiming that the company is also considering a bid for MetroPCS to rival Deutsche Telekom’s offer.
To acquire both would cost Softbank in excess of Y2trn (US$25.6bn) reported Reuters citing a Japanese report.
The Financial Times’ Lex column suggested that a long term plan was to bet on further consolidation in the US market, and to eye a merger of Sprint with T-Mobile USA at a later stage.
Speaking on a conference call yesterday Credit Suisse analyst Hitoshi Hayakawa said CEO Masayoshi Son wants Softbank to be one of the largest companies in the world. That means that should the Sprint deal go through, it may look towards grand consolidation in the US to form a viable competitor to AT&T and Verizon. Fellow Credit Suisse analyst Jonathan Chaplin said Softbank’s deal may herald the start of a consolidation of players lagging behind the big two.
He also said there was a “decent chance” of the FCC agreeing to the consolidation.
While the FCC is against greater consolidation, he said it may allow it due to fears that AT&T and Verizon are forming a duopoly in the market.
Softbank’s rating hit
In light of the news that Softbank was in talks with Sprint, S&P put the Japanese firm on creditwatch negative.
It said it was concerned about Softbank’s credit quality including the amount of the possible investment, the financial scheme of the transaction, Sprint Nextel’s position in Softbank’s global strategy, and Softbank’s financial policy and its willingness to provide financial support to Sprint Nextel.
In its rationale S&P said Sprint’s risk profile may undermine Softbank as it is highly leverage, and added: “We do not believe a potential investment would create meaningful synergies as the two companies operate in different geographic markets.”
