Softbank Corp., Japan’s third-largest mobile phone company, has announced that it will take a 70% stake in Sprint, paying $20.1 billion for the privilege. A domestic market in decline has prompted it to look elsewhere for growth, and the U.S. has become its target.
Bloomberg reported Monday that Softbank’s chairman and CEO, Masayoshi Son, is looking for expansion in the U.S. market, which is still growing even as Japan’s is shrinking. Shareholders will be paid $12.1 billion, and $8 billion in new capital will provide Sprint with the means to pay down its debt, expand its 4G network or make acquisitions that will allow it to face off against competitors Verizon and AT&T.
It’s not an easy path to go,” said Son in the report. “But without taking on a challenge, we may end up facing bigger risks.” Some investors apparently do not agree with that sentiment; shares of the company fell again on Monday, losing 5.3% on top of a record 17% drop Friday after news of the deal leaked.
“The acquisitions of overseas companies by Japanese companies have never been a big success,” said Tomoaki Kawasaki in the report. Kawasaki, a Tokyo-based analyst at Iwai Cosmo Securities, added, “That shows there are always risks in making big overseas acquisitions for a Japanese company.”
However, Sprint investors were more optimistic about the potential, and according to a Huffington Post report, sent shares of Sprint higher in the wake of the news leak. Before the deal was announced, Walt Piecyk, an analyst with BTIG LLC in New York, was quoted saying, “This could be the final and most important piece to reposition Sprint to compete effectively with AT&T and Verizon.”
Son’s company has been profitable in spite of the fact that the Japanese mobile market has been languishing. Softbank was the first company—and in the beginning, the only company—in Japan to offer the iPhone, and its brand has become tied to the iPhone’s star, allowing the company to woo customers from its domestic rivals.