News: SoftBank Spends $20.1 Billion on 70% of Sprint

As speculated late last night, Japan’s SoftBank will buy 70% of Sprint for $20.1 billion. Broken down, this means Softbank will purchase $8 billion in newly-issued shares and $12.1 billion in existing shares. This deal is expected to close by mid-2013, pending shareholder and FCC approvals.

Additionally, there are penalties if either back out, or the shareholders don’t go for it. While not as big as the AT&T/T-Mobile deal’s penalties, each side would owe the other $600 million if they back out, and $75 million if shareholders don’t approve the deal.

Sprint has provided a press release on the matter:

Softbank Corp. and Sprint Nextel Corporation today announced that they have entered into a series of definitive agreements under which SoftBank will invest $20.1 billion in Sprint, consisting of $12.1 billion to be distributed to Sprint stockholders and $8.0 billion of new capital to strengthen Sprint’s balance sheet. Through this transaction, approximately 55% of current Sprint shares will be exchanged for $7.30 per share in cash, and the remaining shares will convert into shares of a new publicly traded entity, New Sprint. Following closing, SoftBank will own approximately 70% and Sprint equity holders will own approximately 30% of the shares of New Sprint on a fully-diluted basis.

SoftBank’s cash contribution, deep expertise in the deployment of next-generation wireless networks and track record of success in taking share in mature markets from larger telecommunications competitors are expected to create a stronger, more competitive New Sprint that will deliver significant benefits to U.S. consumers. The transaction has been approved by the Boards of Directors of both SoftBank and Sprint. Completion of the transaction is subject to Sprint stockholder approval, customary regulatory approvals and the satisfaction or waiver of other closing conditions. The companies expect the closing of the merger transaction to occur in mid-2013.

SoftBank Chairman and CEO, Masayoshi Son, said, “This transaction provides an excellent opportunity for SoftBank to leverage its expertise in smartphones and next-generation high speed networks, including LTE, to drive the mobile internet revolution in one of the world’s largest markets. As we have proven in Japan, we have achieved a v-shaped earnings recovery in the acquired mobile business and grown dramatically by introducing differentiated products to an incumbent-led market. Our track record of innovation, combined with Sprint’s strong brand and local leadership, provides a constructive beginning toward creating a more competitive American wireless market.”

The SoftBank transaction is expected to deliver the following benefits to Sprint and its stockholders:

• Provides stockholders the ability to realize an attractive cash premium or to hold shares in a stronger, better capitalized Sprint
• Provides Sprint with $8.0 billion of primary capital to enhance its mobile network and strengthen its balance sheet
• Enables Sprint to benefit from SoftBank’s global leadership in LTE network development and deployment
• Improves operating scale
• Creates opportunities for collaborative innovation in consumer services and applications

Sprint CEO, Dan Hesse, said, “This is a transformative transaction for Sprint that creates immediate value for our stockholders, while providing an opportunity to participate in the future growth of a stronger, better capitalized Sprint going forward. Our management team is excited to work with SoftBank to learn from their successful deployment of LTE in Japan as we build out our advanced LTE network, improve the customer experience and continue the turnaround of our operations.”

Transaction Terms

• SoftBank will form a new U.S. subsidiary, New Sprint, which will invest $3.1 billion in a newly?issued Sprint convertible senior bond following this announcement. The convertible bond will have a 7-year term and 1.0% coupon rate, and will be convertible, subject to regulatory approval, into Sprint common stock at $5.25 per share. Immediately prior to the merger, the bond will be converted into shares of Sprint, which will become a wholly-owned subsidiary of New Sprint.
• Following Sprint stockholder and regulatory approval, and the satisfaction or waiver of the other closing conditions to the merger transaction, SoftBank will further capitalize New Sprint with an additional $17 billion and effect a merger transaction in which New Sprint will become a publicly-traded company and Sprint will survive as its wholly-owned subsidiary. Of the $17 billion, $4.9 billion will be used to purchase newly issued common shares of New Sprint at $5.25 per share. The remaining $12.1 billion will be distributed to Sprint stockholders in exchange for approximately 55% of currently outstanding shares. The other 45% of currently outstanding shares will convert into shares of New Sprint. SoftBank will also receive a warrant to purchase 55 million additional Sprint shares at an exercise price of $5.25 per share.
• Pursuant to the merger, holders of outstanding shares of Sprint common stock will have the right to elect between receiving $7.30 per Sprint share or one share of New Sprint stock per Sprint share, subject to proration. Holders of Sprint equity awards will receive equity awards in New Sprint.
• Post-transaction, SoftBank will own approximately 70% and Sprint equity holders will own approximately 30% of New Sprint shares on a fully-diluted basis.
• SoftBank is financing the transaction through a combination of cash on hand and a syndicated financing facility.
• The transaction does not require Sprint to take any actions involving Clearwire Corporation other than those set forth in agreements Sprint has previously entered into with Clearwire and certain of its shareholders.

After closing, Sprint’s headquarters will continue to be in Overland Park, Kansas. New Sprint will have a 10-member board of directors, including at least three members of Sprint’s board of directors. Mr. Hesse will continue as CEO of New Sprint and as a board member.

With Sprint being mostly owned by a Japanese carrier, T-Mobile being completely owned by a German carrier, and Verizon Wireless being nearly half-owned by a British carrier (Vodafone), this leaves AT&T as the sole 100% American-owned major carrier. Could this lead to a new ad campaign? U-S-A! U-S-A!