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), according to a source with direct knowledge of the matter.
Softbank said reports about the talks were "based on speculation" and it had no comment. Sprint declined to comment. The report drove Sprint shares up 16 percent in premarket trading Thursday.
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Sprint Nextel, whose market capitalization was $15.12 billion at Wednesday's market close, is the third-largest U.S. carrier, with more than 56 million users at the end of June.
Kevin Roe at Roe Equity Research estimated Softbank could be offering about $6.40 per Sprint Nextel share, a 27 percent premium.
Softbank is in talks with several banks to borrow money to finance a bid, the source told Reuters. One analyst said this deal might be the Japanese company's only option if it has eyes on the American market.
"In terms of (Sprint) standalone, we believe the asset represents the only way for a potential new entrant to get a national presence immediately in the U.S.," Wells Fargo analyst Jennifer Fritzsche wrote in a note to clients.
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 iPhone. 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. It said the buy would give it a total of 39 million users, just ahead of KDDI's 36 million.
Japanese media said buying Sprint - which competes in the United States against Verizon Wireless and AT&T Inc - would also make it cheaper for Softbank to procure smartphones and other mobile devices.
Sprint, led by Chief Executive Dan Hesse, has been bleeding customers for years and is in the middle of a costly network modernization project that involves upgrading its Sprint network. At the same time, it is decommissioning the Nextel iDen network 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."
Sprint may also be attractive as it has a majority interest in wireless data company Clearwire Corp , which owns attractive spectrum, Wells Fargo's Fritzsche said. Analysts at Evercore said Softbank and Clearwire are both in the process of upgrading their networks to the same standard, which might add further synergies.
Clearwire shares rose 23 percent in premarket trading.
Fritzsche said regulators would likely look favorably on a deal that would bring 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 overseas 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.
The Japanese are no stranger to U.S. wireless companies. NTT Docomo was once a major shareholder of the former AT&T Wireless and explored an outright bid for the company at one time.
Meanwhile, Sprint is considering whether to make a 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.
It was unclear what effect, if any, the Softbank offer might have on Sprint's potential pursuit of MetroPCS.
(Additional reporting by Mari Saito and James Topham, with Sruthi Ramakrishnan in Bangalore; Writing by Ian Geoghegan and Ben Berkowitz; Editing by Ron Popeski and John Wallace)