Softbank Corp <9984.T>, Japan's third-largest mobile carrier, is in talks to buy a majority stake in U.S. operator Sprint Nextel Corp for more than 1 trillion yen ($12.8 billion), said a source with direct knowledge of the matter, as it seeks to expand overseas.
Softbank said reports about the talks were "based on speculation". "We have not announced anything. We do not comment on speculation," the company said. No one from Sprint was immediately available for comment.
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Sprint Nextel, worth $15.12 billion at Wednesday's close, is the third-largest U.S. carrier, and had more than 56 million users at end-June.
Kevin Roe at Roe Equity Research estimated Softbank could be offering around $6.40 per Sprint Nextel share - implying a 27 percent premium to Sprint's Wednesday close.
Softbank is in talks with several banks to borrow money to finance a bid, the source told Reuters.
Softbank, founded and led by Masayoshi Son - Japan's second-richest man, according to Forbes - was the first of Japan's leading mobile carriers to offer Apple Inc's iPhone in Japan.
It lost that monopoly last year, when rival KDDI Corp <9433.T> also began offering the device. Softbank faces tougher competition at home against KDDI and market leader NTT Docomo <9437.T>.
The company has grown from a packaged software distributor 30 years ago into a broad telecoms group worth more than $40 billion. It took over Vodafone Japan in 2006.
As it chases market share, Softbank said this month it would buy smaller mobile service operator eAccess Ltd <9427.T> in a $1.84 billion deal, saying this would give the firm a total of 39 million users, just ahead of KDDI's 36 million. That deal was struck at a premium of more than three times eAccess's share price.
Sprint, led by CEO Dan Hesse, has been bleeding customers for years, and is in the middle of a costly network modernization project which involves upgrading its Sprint network at the same time as it decommissions the Nextel iDen network - once famous for its walkie-talkie style feature - that it bought in 2005.
"The challenge is not access to capital," said Roe. "The challenge is that they're sub-scale (much smaller than rivals AT&T and Verizon) and going through a very challenging network transition."
Japanese media said buying Sprint - which competes in the United States against Verizon Wireless and AT&T Inc - would make it cheaper for Softbank to procure smartphones and other mobile devices.
"The asset (Sprint-Nextel) represents the only way for a potential new entrant to get a national presence immediately in the U.S., especially given T-Mobile's recent signaling that it will reinvest in the market and no longer seems willing to sell itself near-term," said Wells Fargo analyst Jennifer Fritzsche in a note.
Sprint may be attractive to Softbank as it has a majority interest in Clearwire Corp , which owns 2.5 Ghz spectrum, Fritzsche said, adding that Softbank is one of few global carriers that has an active 2.5GHz TDD / LTE network.
Fritzsche noted regulators would likely look favorably on a deal that would bring in an outside international player to the United States.
Japanese companies made a record 642 cross-border deals last year, according to Thomson Reuters data. Buoyed by a stronger yen, the value of all outbound deals rose to $69.5 billion, up 81 percent from 2010, also a record.
The biggest foreign acquisition by a Japanese company to date was Japan Tobacco's <2914.T> 1.8 trillion yen buy of British-based tobacco firm Gallaher in 2007.
Sprint is considering whether to make a counter-bid for smaller rival MetroPCS Communications , which this month agreed to merge with Deutsche Telekom's T-Mobile USA, a source told Reuters this week.
(Reporting by Mari Saito and James Topham, with; additional reporting by Sruthi Ramakrishnan in Bangalore; Writing by Ian Geoghegan; Editing by Ron Popeski)