It's official – Japan's Softbank has arranged to acquire a 70% stake in Sprint Nextel with a hefty $20.1 billion investment.
The Japanese operator revealed it will pay $12.1 billion to Sprint shareholders for the stake in the US operator.
The remaining $8 billion will be provided as new capital for the company. Part of the proceeds of this capital will be used to strengthen Sprint's balance sheet.
If and when it goes through, the deal is set to be the largest ever foreign acquisition by a Japanese company.
At a news conference yesterday, Softbank CEO Masayoshi Son acknowledged that the deal is a big risk, but said it was necessary to break out of Japan and into a new market. Son added that he is confident the gambit will pay off.
Softbank and Sprint last week confirmed that they were in negotiations for the deal, after word of a possible merger leaked out.
Analysts agree that the move is a major gamble. Informa Telecoms and Media principal analyst Mike Roberts said the deal “could transform or hobble the companies depending on how it plays out.
“For Softbank it is a huge bet that it’s better to invest $20 billion in the third-largest US mobile operator rather than its home market of Japan where it is the third-largest mobile operator behind NTT DoCoMo and KDDI,” he said.
“For example earlier this month Softbank announced plans to acquire rival eAccess for $2.3 billion in a bid to become the second-largest mobile operator in Japan, and adding a huge international deal on top of that increases the risk that management will be so stretched that neither deal will go to plan.”