Sprint Nextel to get a $20 billion lifeline

Jeff Tyler Oct 15, 2012
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Sprint Nextel to get a $20 billion lifeline

Jeff Tyler Oct 15, 2012
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A Japanese telecom firm plans to invest more than $20 billion in U.S. wireless provider, Sprint Nextel. Softbank, Japan’s third largest wireless company, will take a 70 percent stake in Sprint. If the deal is approved by shareholders and regulators, it would be the biggest overseas acquisition by a Japanese firm.

Softbank’s chief executive, Masayoshi Son, is sort of like a Japanese version of Virgin’s Richard Branson — entrepreneurial, brash and quixotic. Japan’s second richest man, Son founded Softbank as a computer-software wholesaler and transformed it into a major telecom company.

Now he’s set his ambitious sights on the U.S.

“A man must not settle for being number two — you must aspire to be number one,” Son says about the Sprint deal.

So, will the merger of two third-place companies push either into the number one position?

“I don’t think that Softbank really has any real shot at becoming the largest wireless carrier, either in the U.S. or in Japan,” says Michael Hodel, associate director of research at Morningstar. “The companies that they compete against are very formidable and have very deep pockets and massive resources, whether you’re talking about NTT DoCoMo in Japan or AT&T and Verizon Wireless here in the U.S.”

Maybe number one is too much to ask for, considering that Sprint is saddled with billions of dollars in debt.

“Sprint needed to find some kind of an alliance to survive for, say, another decade. It could end up being a first-rate player 10 years from now,” says Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics.

The $20 billion investment will allow Sprint to make investments or buy rival companies. More important, Hufbauer says, the proposed deal is a huge vote of confidence in the U.S. economy.

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