Japanese Softbank has agreed to acquire 70% of US operator Sprint Nextel in a US$20.1bn deal, the companies announced in a joint statement.
Softbank will pay US$12.1bn to Sprint’s shareholders and put US$8bn of capital on to Sprint’s balance…
Japanese Softbank has agreed to acquire 70% of US operator Sprint Nextel in a US$20.1bn deal, the companies announced in a joint statement.
Softbank will pay US$12.1bn to Sprint’s shareholders and put US$8bn of capital on to Sprint’s balance sheet.
At a news conference in Japan Sprint CEO Dan Hesse, who will continue to head the company after the merger, said that the transaction would allow the number three operator to compete with AT&T and Verizon, the market’s dominant players.
Softbank is financing the transaction through a combination of cash on hand and a syndicated financing facility. Mizuho, Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi UFJ and Deutsche Bank acted as mandated lead arrangers to Softbank. According to a Reuters report, the banks have approved loans totalling US$21.1bn to Softbank.
Deal Structure
Under the terms of the agreement roughly 55% of Sprint’s current stock will be bought by Softbank for US$7.30 per share. The remaining 45% of the shares will convert into equity of a new publicly traded entity, called New Sprint.
Softbank will invest US$3.1bn in a newly issued Sprint convertible senior bond. The seven-year convertible bond, which carries a 1% coupon, will be converted into Sprint common stock at US$5.25 per share once all regulatory approvals have been given. Following the share-conversion Sprint will become a wholly-owned subsidiary of New Sprint.
After closure of the transaction Softbank will further capitalise New Sprint with an additional US$17bn and effect a merger transaction in which New Sprint will become a publicly-traded company, with Sprint as its wholly-owned subsidiary. Of the US$17bn, US$4.9bn will be used to purchase newly issued common shares of New Sprint at US$5.25 per share.
Softbank also has the right to purchase 55 million additional Sprint shares for US$5.25 per share.
Sprint shareholders will be able to sell their shares for US$7.30 each or receive one share of New Sprint stock per Sprint share, subject to proration. Holders of Sprint equity awards will receive equity awards in New Sprint.
The transaction will give Softbank a 70% stake in New Sprint, while current Sprint stockholders will own 30% on a fully-diluted basis.
Moody’s said it was reviewing Softbank for a potential downgrade while S&P put the Japanese group on creditwatch negative on Friday ahead of a potential deal.
The respective boards of both companies have approved the deals, which is now subject to shareholder and regulatory approval.
“This transaction provides an excellent opportunity for Softbank to leverage its expertise in smartphones and next-generation high speed networks, including LTE, to drive the mobile internet revolution in one of the world’s largest markets,” said Masayoshi Son, Softbank chairman and CEO, in a statement.
Sprint CEO Hesse said: “This is a transformative transaction for Sprint that creates immediate value for our stockholders, while providing an opportunity to participate in the future growth of a stronger, better capitalized Sprint going forward.”
The Raine Group and Mizuho acted as lead financial advisors to SoftBank. Deutsche Bank also provided financial advice to Softbank in connection with the transaction. Softbank’s legal advisors included Morrison & Foerster as lead counsel, Mori Hamada & Matsumoto as Japanese counsel, Dow Lohnes as regulatory counsel, Potter Anderson Corroon as Delaware counsel, and Foulston & Siefkin as Kansas counsel.
Sprint’s co-lead financial advisors were Citigroup Global Markets, Rothschild and UBS. Skadden, Arps, Slate, Meagher and Flom acted as lead counsel to Sprint. Lawler, Metzger, Keeney and Logan served as regulatory counsel, and Polsinelli Shughart served as Kansas counsel.
Speculation on Softbank’s long-term US plans
In a note to clients published hours before the companies confirmed the transaction Credit Suisse suggested Sprint’s next move will be to consolidate Clearwire.
In today’s deal announcement the companies only said that “the transaction does not require Sprint to take any actions involving Clearwire Corporation other than those set forth in agreements Sprint has previously entered into with Clearwire and certain of its shareholders”.
Sprint owns a 48% stake in Clearwire.
Reports have also suggested that Sprint may now compete with Deutsche Telekom in its attempt to acquire MetroPCS.
Replying to questions about further M&A at today’s press conference in Tokyo, Hesse said: “I do think that consolidation will occur over the long term and this deal gives Sprint the balance sheet to perhaps play a larger role in that in the future.”
He also said that Sprint had considered a number of strategic options but after consideration the board decided the Softbank deal was in the best interests of shareholders. It was widely reported that Sprint had also considered an offer for MetroPCS to rival Deutsche Telekom’s plan to acquire the telco.
News of discussions between Softbank and Sprint first broke on Thursday last week, catching industry watchers off guard. Some analysts have speculated that the deal may spark a flurry of consolidation in the US market.
Speaking on a conference call on Thursday last week, Credit Suisse analyst Hitoshi Hayakawa said CEO Masayoshi Son wants Softbank to be one of the largest companies in the world. He said Son may look towards large-scale consolidation in the US to form a feasible competitor to challenge 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 Federal Communications Commission (FCC) agreeing to further 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 currently operates mobile, broadband, fixed-line and portal services. It is the number three mobile player in Japan and recently agreed to purchase the number five operator, eAccess, for US$2.3bn; a transaction which represents significant consolidation for the Japanese market.
The companies expect the deal to close in mid-2013.
