Japanese Corporation Softbank Buys Sprint

What can $20.1 billion dollars get you? How about 70% of the third largest phone provider in the world? Softbank President Masayoshi Son and Sprint Chief Executive Dan Hesse, Softbank Corporation reached a deal to purchase 70% of the U.S. phone service provider Sprint Nextel Corporation. This was announced this morning in Tokyo at a joint news conference. In tandem, this purchase is set to make Sprint as big and as powerful as AT&T and tied for the biggest phone service provider in the world behind China Mobile and Verizon.

In the wake of the MetroPCS/T-Mobile merger, the Sprint Nextel acquisition by Softbank is another step in a series of acquisitions that have taken place in the last several decades. In addition, Japan’s overseas acquisitions have accrued to over $100 billion. The deal is still pending a green light by company boards, Sprint shareholders, and U.S. regulators, but should be finalized by mid 2013. This deal is expected to double the amount acquired by Japanese corporations last year.

Softbank President Masayoshi Son believes in the investment since the U.S. ranks as the world’s biggest market in smartphones. However, Softbank investors have their doubts. In the wake of the rumors of the deal, Softbank shares decreased in price by a third. Furthermore, Softbank was placed on a “credit watch negative” which means their credit rating is at risk. On the other hand, shares of Sprint’s shares have shot up.

To compete with larger phone service providers, AT&T and Verizon, Sprint has amounted to and struggled with $21 billion in debt. This is due to launching, restructuring a costly service and making a commitment to buy $15.5 billion of iPhones over the next four years. Sprint also recently launched a vanity phone number service known as StarStarMe, allowing customers to be contacted by the simple dialing of a “**” and an available vanity spelling of your choosing.

Masayoshi Son was always interested in entering the mobile market in the United States, especially since the Japanese mobile market has grown stagnant over the years despite Softbank’s strong profits.  To Son, this merger will benefit both sides and should create greater bargaining power with new gadgets and network equipment in the end.