SoftBank, a Japanese telecommunications and Internet corporation, has confirmed via a press release and a live event in Tokyo the $20.1bn investment that would give SoftBank a 70% ownership of Sprint. The news hit the rumor mill 3 days ago and was pretty much confirmed by CNBC yesterday. The transaction is expected to close in mid-2013 pending regulatory approval.
Roughly $12.1bn will be paid to the shareholders at $7.30 a share and $8bn will be used to "strengthen Sprint's balance sheet," grow the network, and perform "strategic investments."
Sprint's shares closed at $5.73 last Friday for a +144.87% gain this year so far. The $7.30 share price will increase the gain to 212%. Not a bad time to be an existing Sprint shareholder right about now.
Sprint's goals in the new era will continue to include maintaining high levels of customer satisfaction and finishing its Network Vision program, which includes shutdown of Nextel's IDEN network, upgrades to CDMA equipment, and wide rollout of LTE.
Sprint's current CEO Dan Hesse and SoftBank's CEO Masayoshi Son were on stage at the event in Japan. They had this to say about the majority stake acquisition:
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. -Masayoshi Son
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. -Dan Hesse
The transaction will include formation of three companies: Starburst I (HoldCo), II (New Sprint), and III (Merger Sub). New Sprint will eventually take over the current Sprint's listing on NYSE. SoftBank will pay Sprint $600mn if it fails to come up with the required amount, while Sprint, in turn, will pay up the same amount in case it decides to accept a higher bid by another investor or $75mn in case Sprint's shareholders do not approve the deal.
Sprint's CEO Dan Hesse will become the CEO of New Sprint.
You can find further details, along with some pictures of the event, below.
SoftBank to Acquire 70% Stake in Sprint
TOKYO & OVERLAND PARK, Kan. (BUSINESS WIRE), October 15, 2012 - SOFTBANK CORP. (“SoftBank”) (TSE: 9984) and Sprint Nextel Corporation (“Sprint”) (NYSE: S) 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.”
- 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.
The Raine Group LLC and Mizuho Securities Co., Ltd. acted as lead financial advisors to SoftBank. Mizuho Corporate Bank, Ltd., Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi UFJ, Ltd. and Deutsche Bank AG, Tokyo Branch acted as mandated lead arrangers to SoftBank. Deutsche Bank also provided financial advice to SoftBank in connection with this transaction. SoftBank’s legal advisors included Morrison & Foerster LLP as lead counsel, Mori Hamada & Matsumoto as Japanese counsel, Dow Lohnes PLLC as regulatory counsel, Potter Anderson Corroon LLP as Delaware counsel, and Foulston & Siefkin LLP as Kansas counsel.
Citigroup Global Markets Inc., Rothschild Inc. and UBS Investment Bank acted as co-lead financial advisors. Skadden, Arps, Slate, Meagher and Flom, LLP acted as lead counsel to Sprint. Lawler, Metzger, Keeney and Logan served as regulatory counsel, and Polsinelli Shughart PC served as Kansas counsel.
SoftBank was established in 1983 by its current Chairman & CEO Masayoshi Son and has based its business growth on the Internet. It is currently engaged in various businesses in the information industry, including mobile communications, broadband services, fixed-line telecommunications, and portal services. In terms of consolidated results for fiscal 2011, net sales increased 6.6% year on year to ¥3.2 trillion, operating income increased 7.3% to ¥675.2 billion, and net income rose 65.4% to ¥313.7 billion.
About Sprint Nextel
Sprint Nextel offers a comprehensive range of wireless and wireline communications services bringing the freedom of mobility to consumers, businesses and government users. Sprint Nextel served more than 56 million customers at the end of the second quarter of 2012 and is widely recognized for developing, engineering and deploying innovative technologies, including the first wireless 4G service from a national carrier in the United States; offering industry-leading mobile data services, leading prepaid brands including Virgin Mobile USA, Boost Mobile, and Assurance Wireless; instant national and international push-to-talk capabilities; and a global Tier 1 Internet backbone. The American Customer Satisfaction Index rated Sprint No. 1 among all national carriers in customer satisfaction and most improved, across all 47 industries, during the last four years. Newsweek ranked Sprint No. 3 in its 2011 Green Rankings, listing it as one of the nation’s greenest companies, the highest of any telecommunications company. You can learn more and visit Sprint at www.sprint.com or www.facebook.com/sprint and www.twitter.com/sprint.