Japanese mobile operator Softbank Corp said on Monday it will buy up to 70 percent of Sprint Nextel Corp, the third-largest U.S. carrier, for about $20.1 billion - the most a Japanese firm has spent on an overseas acquisition.

The deal, announced jointly by Softbank's billionaire founder and chief Masayoshi Son and Sprint CEO Dan Hesse at a packed news conference in Tokyo, will provide Softbank entry into a U.S. market that still shows growth, while Japan's market is stagnating.

It will also give Sprint the firepower to buy peers and build out its 4G network to compete better in a U.S. market dominated by AT&T and Verizon Wireless, analysts have said.

Hesse said the Softbank investment would give Sprint opportunities it hadn't had since he joined the firm in late-2007. "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.

While U.S. analysts have long said the telecoms industry needs consolidation, few have looked to Japan as a catalyst. But 55-year-old Son, known for his risk-taking, is betting that U.S. growth can offer relief from cut-throat competition for subscribers in Japan's saturated mobile market. Combined, Softbank and Sprint will have 96 million users.

SOFTBANK SHARES TUMBLE

Softbank said that as part of the deal it would buy $3.1 billion of bonds convertible into Sprint stock at $5.25 a share, while about 55 percent of current Sprint shares would be exchanged for $7.30 per share in cash, with the transactions to be completed by mid-2013. Sprint shares closed Friday at $5.73.

Softbank shares tumbled more than 8 percent earlier on Monday, and closed at their lowest in 5 months, down 5.3 percent. The stock has lost more than a fifth of its value - or $8.7 billion - since news first broke late last week of the firm's interest in Sprint.

"It's the same (market) reaction as when Softbank said it was going to buy Vodafone a few years ago. Everyone came out and said it was far too expensive," Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities, said ahead of the announcement.

Softbank bought Vodafone's Japan unit for $15.5 billion in a 2006 deal that propelled the firm into the mobile carrier business. "Son made a company worth 3 trillion yen, and now it will be worth 6 trillion yen. That's quite impressive, and I think investors will realise he's making the right decision down the road," said Nakanishi.

BIGGER RISK

Son acknowledged that a move for Sprint was risky, but he said doing nothing was riskier still.

"It could be safe if you do nothing and our challenge in the U.S. is not going to be easy at all. We must enter a new market, one with a different culture, and we must start again from zero after all we have built," he told the news conference.

"But not taking this challenge will be a bigger risk," he said, adding his firm needed to break out of Japan's fast-ageing domestic market.

Four banks have approved loans totalling 1.65 trillion yen ($21.1 billion) to Softbank, three sources with direct knowledge of the matter told Reuters earlier on Monday. Mizuho Financial Group Inc, Sumitomo Mitsui Financial Group, Mitsubishi UFJ Financial Group and Deutsche Bank submitted a commitment letter to Softbank promising the loans on Monday.

Sprint, which has lost money in all of the last 19 quarters, has net debt of about $15 billion, while Softbank has net debt of about $10 billion. Brokers have warned that the deal could leave Softbank with "unacceptably high" gearing, a ratio of its debt to shareholder capital. Standard & Poor's has warned the deal "may undermine Softbank's financial risk profile" and would pressure its free operating cash flow for the next few years.

NO CLEARWIRE OBLIGATION

The companies said Hesse would remain as CEO of Sprint.

Analysts have said that Softbank buying a 70 percent stake in Sprint for $20 billion would imply the No. 3 U.S. wireless company was worth about $28.6 billion, some two-thirds greater than its market capitalization at Friday's close.

Sprint, which is going through a $7 billion upgrade of one of its networks, while closing its Nextel iDen network, could use some of the proceeds to buy the part of Clearwire Corp it doesn't already own, analysts have said. Clearwire has high-speed infrastructure that is attractive to mobile carriers struggling with the increase in data due to the rising numbers of smartphone users. Shares in Clearwire, 48 percent-owned by Sprint, soared on Friday.

Softbank said, however, that the deal did not require Sprint to take any action involving Clearwire.

An alliance with Sprint could also give Softbank leverage when dealing with Apple Inc, helping bolster its domestic position against KDDI Corp, which also offers the iPhone in Japan, and market leader NTT Docomo, which is yet to offer the Apple smartphone.

With Sprint in hand, Softbank may also look to acquire smaller U.S. carrier MetroPCS Communications, Japanese media have reported. Sprint has had a long interest in MetroPCS, which earlier this month agreed to merge with T-Mobile USA, part of Deutsche Telekom AG.

The Sprint deal takes outbound deals by Japanese firms to a record $75 billion this year, Thomson Reuters data shows, underscoring a strong appetite for overseas assets seemingly unaffected by signs of slowing global growth.

This is not the first Japanese foray into telecoms overseas. NTT Docomo racked up big losses after a string of failed investments in names like AT&T Wireless and Taiwan mobile operator KG Telecom in the late 1990s and early 2000s.

Raine Group LLC, a boutique merchant bank focused on the technology, media and telecoms sector, and Mizuho Securities were lead financial advisers to Softbank.

($1 = 78.3550 Japanese yen)

(Additional reporting by Nadia Damouni in New York and Taro Fuse, Sophie Knight, James Topham, Andrea Shalal-Esa in Tokyo; Writing by Linda Sieg; Editing by Ian Geoghegan)