Softbank to buy 70% of Sprint for $20.1B

Japanese operator Softbank will purchase 70 percent of Sprint Nextel (NYSE:S) in a deal valued at $20.1 billion. The move could change the competitive landscape of the U.S. wireless market by strengthening Sprint financially.

The Softbank deal, which had been percolating for the past several days, became official early Monday morning. Softbank said it will pay $12.1 billion directly to Sprint shareholders and will pay another $8 billion for new equity in Sprint at $5.25 per share. Under the terms of the deal, around 55 percent of current Sprint shares will be exchanged for $7.30 per share in cash, and the remaining shares will be converted into shares of a new publicly traded entity, New Sprint. After the deal closes Softbank will own around 70 percent and Sprint shareholders will own 30 percent. The companies said they expect the deal to close in mid-2013.

Sprint, which carries around $21 billion in long-term debt, said the deal would give it $8 billion in new capital to enhance its network and strengthen its balance sheet. Sprint also said the deal will improve its scale, create new opportunities to collaborate on consumer services and applications and take advantage if Softbank's leading position in the TD-LTE ecosystem. Sprint stressed that shareholders will be able to "realize an attractive cash premium or to hold shares in a stronger, better capitalized Sprint."

Sprint will remain a publicly traded company and a subsidiary of Softbank after the deal closes. Importantly, the companies said that the transaction does not require Sprint to take any actions involving Clearwire (NASDAQ:CLWR) "other than those set forth in agreements Sprint has previously entered into with Clearwire and certain of its shareholders." Some earlier reports had indicated that a Softbank/Sprint deal would be contingent upon Sprint gaining control of Clearwire; Sprint holds a  48 percent stake in Clearwire.

Many industry analysts believe Softbank may be looking to boost the 2.5/2.6 GHz TD-LTE ecosystem. Clearwire is using that spectrum and technology for its LTE buildout, and plans to launch LTE service next year. Sprint has said its LTE devices will be able to run on its FDD-LTE network as well as Clearwire's TD-LTE network, and Sprint will offload excess traffic onto Clearwire's network.

After the deal closes, Sprint's headquarters will continue to be in Overland Park, Kan. The new Sprint will have a 10-member board of directors, including at least three members of Sprint's current board of directors. Dan Hesse will continue to serve as CEO of Sprint and as a board member.

At a presentation for investors Monday, Hesse said that the deal will allow Sprint to grow as its moves through its Network Vision network modernization. The multibillion-dollar project will be largely complete by the end of 2013 and should help Sprint financially starting in 2014.

The deal "gives the company opportunities internally and externally that it hasn't had in last few years," Hesse said, according to AllThingsD. "This is pro-competitive and pro-consumer," Hesse added, because it will lead to a stronger No. 3 carrier.

In a research note, Credit Suisse analyst Jonathan Chaplin said the deal has several key benefits for Sprint. New capital from Softbank "will enable Sprint to accelerate consolidation of the industry," he wrote, and will "also allow Sprint to meaningfully improve its spectrum position relative to AT&T (NYSE:T) and Verizon (NYSE:VZ)." Further, he wrote that "Softbank has a strong track record of innovation and cost management. Their expertise could add further value to Sprint over time."

Softbank's bid for control of Sprint comes as the U.S. wireless industry remains in a state of flux. Deutsche Telekom's T-Mobile USA agreed to acquire flat-rate player MetroPCS (NYSE:PCS), which many analysts see as the German company trying to hasten its exit from the U.S. market.