Tokyo – Telecom and Internet company SoftBank of Japan believes it can accelerate Sprint’s turnaround after entering into a definitive agreement to invest $21.1 billion in the struggling carrier.
The deal gives SoftBank 75 percent ownership of Sprint and provides Sprint with $8 billion to enhance its network and strengthen its balance sheet, the companies announced.
SoftBank will add “capital and strategy” to Sprint, contribute economies of scale to buying smartphones and LTE network infrastructure, and leverage its turnaround expertise after having purchased and resuscitated three ailing companies in the past, said SoftBank chief executive Masayoshi Son during a press conference. Those companies included wireless carrier Vodafone in Japan, purchased in 2006, and Japan Telecom.
SoftBank will also contribute its 4G LTE expertise, Son said, noting that SoftBank’s advanced LTE network in Japan averages 18.2 MB per second versus the two speeds of its two larger Japan competitors, at 5.5MBps and 4.5MBps.
The acquisition will accelerate Sprint’s subscriber growth and turnaround, reduce Sprint’s debt to less than 1.4 times its EBITDA, and make SoftBank the world’s third largest wireless carrier in revenue, he continued.
SoftBank will own about 70 percent, and Sprint equity holders will own approximately 30 percent of the shares of Sprint on a fully diluted basis. The deal will be paid for in cash and debt, but Son said the increased debt load would be manageable, noting that SoftBank is profitable and that SoftBank repaid the debt it incurred in acquiring Vodafone seven years ahead of the schedule in 2011. SoftBank’s debt is currently $50.3 billion.
Son said he expects the company will grow the share of the No. 3 U.S. carrier, which is competing in what he called a duopoly, in much the same way that SoftBank did six years ago, acquiring the No. 3 Japan carrier Vodaphone, which also competed in a duopoly. Sprint’s subscriber share is 15 to 16 percent, CEO Dan Hesse noted.
SoftBank, which also owns Yahoo Japan and China’s Alibaba, sees opportunity in the U.S. market and in Sprint in particular because the U.S. wireless market is larger than it is in Japan, has more smartphone users than any other country, and enjoys the highest ARPU in the world, Son said. In addition, because U.S. data speeds are only the fifth highest in the world after Japan, SoftBank sees “compelling market opportunity” to improve that, he said.
In a statement, SoftBank said its “cash contribution, deep expertise in the deployment of next-generation wireless networks, and track record of success in taking share in mature markets from larger telecommunications competitors are expected to create a stronger, more competitive New Sprint that will deliver significant benefits to U.S. consumers.”
Both companies’ boards of directors have approved the agreements, which must still be approved by Sprint stockholders and the federal government. The companies expect the closing of the merger transaction to occur in mid-2013.
“As we have proven in Japan, we have achieved a v-shaped earnings recovery in the acquired mobile business and grown dramatically by introducing differentiated products to an incumbent-led market,” SoftBank said. “Our track record of innovation, combined with Sprint’s strong brand and local leadership, provides a constructive beginning toward creating a more competitive American wireless market.”
For his party, Hesse pointed out at the press conference that the investment by SoftBank will “open up opportunities for us” because Sprint has been “financially constrained” in improving its network, launching LTE, and undertaking other measures to invest for growth. The acquisition will be “pro-competitive” and “pro-consumer” because it will create “a stronger, more robust U.S. competitor.”
Sprint’s Hesse said Sprint has been turning itself around since he came on board in 2007, and in the second quarter, Sprint was tops in revenue and ARPU growth and posted an all-time quarterly high of any U.S. carrier in that quarter in year-over-year , he said. In the second quarter, however, Sprint loss deepened to $1.4 billion from a year-ago $847 million.
SoftBank will form a new U.S. subsidiary, New Sprint.