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SoftBank to Invest $20.1B in Sprint

As expected, Japanese wireless giant SoftBank has agreed to purchase a 70% interest in Sprint-Nextel for $20.1 billion, a deal which will pump needed capital into the U.S. telecom carrier.

SoftBank will invest a total of $20.1 billion in Sprint, $12.1 billion to be distributed to Sprint shareholders and $8 billion in new capital to strengthen the carrier’s balance sheet. About 55% of Sprint’s current shares will be exchanged for $7.30 in cash and the remaining shares will convert into stock in a new publicly traded entity called New Sprint. Following the closing of the deal – expected by mid-2013 – SoftBank will own 70% of Sprint’s outstanding shares and Sprint shareholders will own the other 30%.

News that the two telecom giants were close to a deal was first reported by The Wall Street Journal on Friday.

The deal will make SoftBank, currently the third largest mobile operator in Japan, one of the largest telecom companies in the world, with more than 90 million subscribers.

Sprint – currently the third-largest mobile carrier in the U.S. – will get some needed capital to help it complete the buildout of its own LTE (Long Term Evolution) network and to better compete against top wireless companies Verizon and AT&T. In the meantime SoftBank gets a foothold into the U.S. market, which it estimates to have about $170 billion in annual revenue.  

“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,” SoftBank chairman and CEO Masayoshi Son said in a statement. “…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.”

The deal also brings some immediate value to Sprint shareholders – the $7.30 cash price of the acquisition represents a 44% premium to Sprint’s closing of $5.04 each on Oct. 10.

Sprint CEO Dan Hesse, who will remain in that position after the deal closes, added at the press conference announcing the deal, that the combination creates a stronger No. 3 mobile operator in the U.S., adding that there is a lot Sprint can learn from SoftBank.

SoftBank is a relative newcomer to the telecom industry, forming in 1983 and reporting revenue of 3.2 trillion Yen ($40.6 billion) in 2011.

“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,” Hesse said in a statement. “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.”

The Raine Group LLC and Mizuho Securities Co., Ltd. acted as lead financial advisors to SoftBank. Mizuho Corporate Bank, Ltd., Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi UFJ, Ltd. and Deutsche Bank AG, Tokyo Branch acted as mandated lead arrangers to SoftBank. Deutsche Bank also provided financial advice to SoftBank in connection with this transaction. SoftBank’s legal advisors included Morrison & Foerster LLP as lead counsel, Mori Hamada & Matsumoto as Japanese counsel, Dow Lohnes PLLC as regulatory counsel, Potter Anderson Corroon LLP as Delaware counsel, and Foulston & Siefkin LLP as Kansas counsel.

Citigroup Global Markets Inc., Rothschild Inc. and UBS Investment Bank acted as co-lead financial advisors. Skadden, Arps, Slate, Meagher and Flom, LLP acted as lead counsel to Sprint. Lawler, Metzger, Keeney and Logan served as regulatory counsel, and Polsinelli Shughart PC served as Kansas counsel.