Softbank nears $20 billion deal for 70 percent of Sprint

Japanese mobile operator Softbank Corp will announce later on Monday a deal to acquire control of U.S. carrier Sprint Nextel Corp, a source familiar with the matter said, with the likely $20 billion price tag the most any Japanese firm has paid for an overseas takeover.

The deal, to be announced at a news conference at 4.00 a.m. EDT, would give Sprint ammunition to potentially acquire peers and build out its 4G network to compete better in a U.S. wireless market dominated by AT&T and Verizon. Sprint said it would hold a special webcast at 4 a.m. Eastern Time - coinciding with the planned Tokyo briefing.

Shares in Softbank - whose billionaire founder and CEO Masayoshi Son is known for his risky bets - tumbled as much as 8.1 percent on Monday, and have lost more than a fifth of their value since news first broke of the firm's interest in Sprint. Investors are concerned that Son may be offering too much to enter the United States telecommunications market.

Under the deal taking shape, Softbank would buy $3 billion of bonds convertible into Sprint stock at $5.25 a share, the Wall Street Journal reported, citing people familiar with the matter. It would also buy $5 billion in stock directly from Sprint, and offer $7.30 a share for stock it buys in the public markets. Sprint shares closed on Friday at $5.73.

Sprint, led by CEO Dan Hesse, has net debt of about $15 billion, while Softbank has net debt of about $10 billion. Adding the $2 billion of net debt of eAccess Ltd, which Softbank recently agreed to buy, would raise "post-deal gearing levels to unacceptable heights", Societe Generale said in a client note on Friday.

Four banks approved loans totaling 1.65 trillion yen ($21.1 billion) to Softbank, three sources with direct knowledge of the matter told Reuters 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.

"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," said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities.

Softbank acquired Vodafone's Japan unit for $15.5 billion in a landmark deal in 2006 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 realize he's making the right decision down the road," said Nakanishi.

On Friday, Standard & Poor's put its "BBB" long-term rating on Softbank on 'credit watch with negative implications', saying the deal "may undermine Softbank's financial risk profile" and would pressure its free operating cash flow for at least the next few years.

CLEAR FOR CLEARWIRE

Sprint confirmed on Thursday it was in talks with Softbank about an investment that could involve a change in control. If Softbank takes a 70 percent stake of Sprint for $20 billion, as sources have suggested, that 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.

A tie-up between Sprint and Softbank could see the U.S. firm use some of the proceeds to buy the part of Clearwire Corp it doesn't already own. 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. Clearwire stock soared on Friday.

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

A Tokyo-based Softbank spokesman on Monday reiterated that the company was in talks about an investment in Sprint, but no agreement had been reached. Sprint representatives were not immediately available to comment, and a Clearwire spokesman declined to comment.

SECOND STEP

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.

A deal for Sprint at around the levels mentioned by sources - and including a follow-on deal for MetroPCS - would lift the tally of outbound deals by Japanese firms to a record $80 billion this year, Thomson Reuters data shows, underscoring a strong appetite for overseas assets seemingly unaffected by signs of slowing global growth.

This wouldn't be 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.

While analysts in the United States have long said the telecoms industry needs consolidation, few looked to Japan as a catalyst for that. But Softbank's Son is betting that U.S. growth can offer some relief from cut-throat competition for subscribers in Japan's saturated market.

"Sprint has tried all kinds of investments and it's in tatters after none of them worked out," said a former NTT Docomo executive. "But this is Son, so we can't even imagine what he's got planned. He's the kind of person who would make a decision if it has a 50 percent success rate, so he must have a plan."

A takeover of Sprint would require approval from U.S. regulators, including the Justice Department and the Federal Communications Commission. Given the importance of the industry to U.S. national security, any deal would also likely warrant a review by the inter-agency Committee on Foreign Investment in the United States, according to one Washington-based attorney who advises on mergers and acquisitions. The attorney said Japan's status as a close U.S. ally would help Softbank.

($1 = 78.3550 Japanese yen)

(Additional reporting by Sophie Knight, James Topham, Andrea Shalal-Esa and Mari Saito; Editing by Gunna Dickson and Ian Geoghegan)