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Softbank Announces it Will Acquire Sprint for roughly $20 Billion

On Monday, Japanese telecommunications giant SoftBank Corp. announced it will buy 70 percent of Sprint Nextel Corp. for $20.1 billion, making the transaction the largest overseas acquisition by a Japanese company, according to The Wall Street Journal. The news outlet compared the deal to Japan Tobacco Inc.’s $19.1 billion purchase of British company Gallaher Group in 2006.

The Softbank-Sprint transaction, which is expected to occur in mid-2013, will introduce the ever-growing Japanese firm to American markets, giving it one of the largest subscriber bases between the U.S. and Japan, and increasing its mobile telecom service revenue to the third-highest globally, according to a statement released by Softbank. The deal has been approved by the boards of directors at both SoftBank and Sprint, and it still needs the approval of Sprint shareholders and federal regulators.

Softbank states it will pay approximately $8 billion for shares valued at $5.25 each directly through Sprint, while the remaining $12.1 billion will be used to invest in approximately 55 percent of existing stock valued at $7.30 a share.

An attractive prospect
While Softbank shares dropped nearly 17 percent after the company confirmed an acquisition was in the works, Sprint shares have surged 14 percent since Thursday, according to The New York Times. The American company is expected to benefit from the extra cash needed to expand its network and accommodate growing wireless demands, while Softbank sees the deal as just the first step in developing its empire in the U.S.   

Many analysts are also bringing Clearwire Corp. into consideration, as Sprint owns a significant portion of it. The 4G wireless broadband company’s shares have surged 21 percent today, according to Reuters, and financial forecasts consider Clearwire a foreseeable perk for Softbank.

Tidying up an old mess
While the acquisition is opening the door for Softbank to assert its command of smartphones and next-generation connectivity into American markets, the Japanese corporation will be challenged to make up for what Sprint has lacked.

Sprint CEO Dan Hesse said,“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.” 

Reuters noted that Sprint stock surged last week and is now valued at $5.75. Meanwhile, the cell service provider has suffered immensely over the past years as smartphone use has surged and service provider competition has boasted its strength. According to The New York Times, Sprint is currently facing $21 billion in debt.

“Sprint has been engaged in turnaround since 2008. We have been at a disadvantage due to our debt," Hesse told Reuters at a press conference. “This is pro-competitive and pro-consumer in the U.S. because it creates a stronger No. 3 ... it competes with the duopoly of AT&T and Verizon. When you look at what Softbank has accomplished in Japan with the No. 3 carrier, it's something we can learn from," he said.

What do you think of the Softbank-Sprint deal? Do you think M&As are preferred method of business growth?

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