Japanese Carrier in Talks to Buy or Take Stake in Sprint
If Japanese wireless carrier Softbank buys Sprint Nextel, it would mark the biggest investment by a foreign operator in the U.S. wireless industry in more than a decade. Sprint said in a brief statement that talks are underway and involve Softbank making a “substantial investment” in Sprint. Japan’s Nikkei newspaper reported on its website that Softbank is looking at a purchase of Sprint for more than $19 billion. Analysts were taking the deal seriously and agreed Softbank likely is also interested in Sprint partner Clearwire and its extensive spectrum holdings, though Stifel Nicolaus said it “can only be considered surprising news."
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The deal likely would pass muster with the FCC and the Justice Department, because it would not raise the same market power concerns that led to the failure of AT&T’s bid for T-Mobile last year, analysts said Thursday. FCC officials told us that in general they don’t expect the deal to raise major concerns, though the details remain to be seen. “Although there can be no assurances that these discussions will result in any transaction or on what terms any transaction may occur, such a transaction could involve a change of control of Sprint,” Sprint said. “Sprint does not intend to comment further unless and until an agreement is reached."
Sprint, which seemed interested in MetroPCS, has been “very quiet” since Deutsche Telekom agreed to buy the smaller carrier to merge it into T-Mobile USA (CD Oct 4 p1), said Credit Suisse analyst Jonathan Chaplin on a call Thursday morning. “That was very surprising to us,” he said. “It could have meant that the bidding went too high and they weren’t interested in participating at that price, or it could have meant that they were in talks with Softbank and going in a completely different direction."
"From an FCC/DOJ perspective … I don’t think there’s a tremendous problem,” Chaplin said. “If Softbank was making a bid for all of [Sprint], there might be a second level of review. That generally only happens when a foreign entity with a government stake takes a stake in a strategic asset. Either way, I don’t think it would be much of a problem.” Wells Fargo thinks that, “since this purchase would represent an outside international player coming into the U.S. … such a move would generally be viewed favorably by regulators,” wrote analyst Jennifer Fritzsche.
"As we have written in the past, when the wave of M&A hits the industry it usually comes in clusters,” Fritzsche wrote investors. “We note Softbank is one of the few global carriers that has an active 2.5 GHz TDD/LTE network. While we do not know the details or expected synergies, we would guess that Softbank likely is also attracted to Sprint given the relationship and ownership stake in [Clearwire] (which holds an average of 130 MHz of 2.5 Ghz spectrum per market). In terms of [Sprint] standalone, we believe the asset represents the only way for a potential new entrant to get a national presence immediately in the US -- especially given [T-Mobile’s] recent signaling that it will reinvest in the U.S. market and no longer seems willing to sell itself near term."
Medley Global Advisors analyst Jeff Silva predicted an easy road to approval. “Our sense is the Obama administration, increasingly wary of Verizon’s and AT&T’s muscular positions in a wireless space where the spectrum supply is dwindling and which requires heavy capitalization for 4G LTE infrastructure development, would welcome a stronger Sprint and a stronger T-Mobile … in the national mobile mix,” Silva said. “The Democratic-led FCC is not only trying to maintain a competitive wireless market as a general policy matter, but appears (through transaction conditions and new rulemakings) to also desire a meaningful counterbalance to Verizon and AT&T going forward."
Sanford Bernstein analyst Craig Moffett said there are more unknowns than knowns about the deal. “The reported price has ranged from ¥1 trillion to ¥2 trillion,” he wrote. “It is for all or part of Sprint (we've heard everything from 65 percent to “mid-seventies” to 100 percent). It is includes debt… or it doesn’t. Assuming it does include debt, it includes deferred tower and backhaul rent obligations … or it doesn’t. Softbank wants Clearwire as well … or they don’t. It’s an all cash offer … unless it’s not."
Deutsche Telekom jumped into the U.S. market in 2001, paying $35 billion for VoiceStream Wireless, which became T-Mobile USA. Two years earlier, U.K.-based Vodafone announced a $90-billion joint venture with Bell Atlantic creating Verizon Wireless. Vodafone continues to own 45 percent of the carrier, Verizon Communications the rest. If Softbank buys Sprint, AT&T would be the only major U.S. wireless carrier solely in U.S. hands. Sprint is the third largest U.S. carrier based on the number of subscribers, and Softbank is number three in the Japanese market. Sprint stock closed up 14 percent to $4.76 Thursday.