SoftBank invested $20.1 billion in Sprint Nextel in October, consisting of $12.1 billion to be distributed to Sprint stockholders and $8.0 billion of new capital to strengthen Sprint’s balance sheet.
Softbank Mobile, which has more than 25 million users, operates a TDD LTE system using macro, micro and femtocells in the 2.5 GHz band. It also has operations in the 900 MHz band and has installed Wi-Fi Spots at 240,000 locations nationwide.
Sprint CEO, Dan Hesse, said in a press release, “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. Our management team is excited to work with SoftBank to learn from their successful deployment of LTE in Japan as we build out our advanced LTE network, improve the customer experience and continue the turnaround of our operations.”
Christopher Larsen, senior research analyst, Piper Jaffray, wrote, “We believe this is a good move for the company and mildly positive for the stock. The immediate benefit to the company is that the deal recapitalizes Sprint’s balance sheet. $8 billion in cash reduces the leverage ratio (year-end 2012 net debt to 2011 EBITDA) from 3.4x to 1.8x. This provides substantial flexibility, and can result in reduced debt costs. Any operational benefits are limited in our opinion, although there are some scale benefits to purchasing power.”
Larsen, however, believes the synergies between the two companies would be limited and the real benefit to Sprint would be the cash. Softbank is a conglomerate with a market capitalization of $43 billion, covering a wide range of industries, including video gaming, publishing and data centers, as well as wireless. As to why Softbank is interested in Sprint, Larsen said the company probably views Sprint as a good investment in an industry that it believes it knows, according to Larsen.
Sprint could use the cash to support the Network Vision build out, or it could use it to buy MetroPCS or it purchase LEAP Wireless International. The cash could also be used to buy out the remaining stake in Clearwire and do a deal with Dish, Larsen wrote.
Sprint is holding off on launching a counterbid for MetroPCS, according to a report on Bloomberg.com, published the day before the Softbank story broke. Sources say that Sprint may have a three-month window in which to make its bid. Or it could be waiting for the Softbank deal to go through so it could use it toward the MetroPCS purchase.
At this point, everything seems to be in play. Bloomberg further posits that Sprint could wait and buy the combine assets of T-Mobile/MetroPCS. In the multiple choice test of telecom mergers, Oppenheimer analyst Timothy Horan, chose all of the above in a research note, predicting the ultimate union of Sprint, T-Mobile, MetroPCS, LEAP, Clearwire and Softbank. But we would have to see what the antitrust folks at the DOJ would have to say about that.