A deal giving Japan’s Softbank control of Sprint gives the number three US wireless carrier a needed injection of cash and muscle to compete in the fast-changing American market, analysts say.
The two telecom firms confirmed Monday that Softbank would pay $20 billion for a 70 percent stake in US-based Sprint Nextel in the biggest overseas acquisition by a Japanese firm.
The tie-up “will provide Sprint with capital that the company needs to better compete with its larger rivals,” said analyst Thomas Seitz at Jefferies.
But the analyst said that because there is little overlap between the two carriers, the deal will provide “limited synergies” or cost savings.
Sprint chief executive Dan Hesse, who will continue to run the US business, said the deal was a “transformative transaction”, giving Sprint liquidity to remain competitive in a US field dominated by AT&T and Verizon Wireless.
“We’ve been at a significant disadvantage with a weak balance sheet in a competitive environment dominated by two very well capitalized and much larger competitors.”
Hesse said the addition of $8 billion in capital “is expected to help for strategic options we haven’t had available to us.”
The tie-up suggests a potential for new maneuvers in the US market just days after Deutsche Telekom’s US affiliate T-Mobile USA unveiled a plan for a merger with smaller carrier MetroPCS.
Credit Suisse analyst Jonathan Chaplin said the new Sprint could become aggressive on the acquisition front in what amounts to “a grand roll-up of the industry.”
“We then expect the company to go after other independent carriers in a bid to create a wireless company that will rival AT&T and Verizon in scale,” he said in a note to clients.
“New capital from Softbank will enable Sprint to accelerate consolidation of the industry.”
Some analysts say Sprint could make an offer for MetroPCS, outbidding T-Mobile, or seek to swallow up T-Mobile entirely.
Sprint has around 56 million US customers, roughly half the size of Verizon and AT&T. But it could come closer with T-Mobile’s 33 million and MetroPCS’s 9.3 million.
David Barden at Bank of America/Merrill Lynch, however, said that American regulators would likely frown on a T-Mobile deal with Sprint because it could concentrate too much spectrum in the hands of one carrier.
Another element in the deal is Clearwire, a wireless broadband firm in which Sprint holds a 48 percent stake.
Although the deal has no specifics on Clearwire, analysts say the extra cash could allow Sprint to gain full control of the group to help improve its network.
“Clearwire adds the scarier part of the puzzle by providing ample capacity for Sprint to continue offering unlimited data offerings while its peers are metering data with buckets,” said Walter Piecyk at BTIG Research, adding that this “could truly differentiate Sprint” from its rivals.
Jefferies’ analyst Seitz said that Sprint, by offering unlimited data plans, “could attract more iPhone customers than we anticipate.”
But Seitz noted there is “no clear urgency for Sprint to acquire Clearwire as part of a deal with Softbank right now” but that a Softbank-controlled Sprint could look to acquire Clearwire later “and potentially get a deal done at a more favorable price.”
Softbank tie-up gives Sprint hard cash
