Tuesday, October 16, 2012

Softbank will take over 70% of Stock in Sprint Nextel Corporation(NYSE:S) - Clearwire Corporation (NASDAQ:CLWR)

The news is confirmed – A Japanese telecommunications company has acquired a 70% of a wireless carrier, in what is believed to be the biggest international deal for a Japanese firm, with a whopping $20.1 billion! The two companies mentioned are Softbank and Sprint Nextel Corporation(NYSE:S) respectively and the revamped publicly traded firm will be known as “New Sprint”

Stock of Sprint Nextel ended lower by 0.70% in Monday trading. The stock has shot up ever since the impending acquisition came on the news. The deal is awaiting the approval of Sprint shareholders and involves a 36% premium to the average share price of the company over the last two weeks.

Softbank will be able to take on rivals in the wireless market such as AT&T and Verizon, due to its holdings in Sprint. SoftBank founder and CEO Masayoshi Son is a tad nervous, as was implied in a recent press conference, because the US market poses a great challenge as it is a brand new territory with its own trends and they need to start from scratch.

The combination of the two companies will include a 96 million customer base. Sprint Nextel itself is a merger of two firms back in 2005, which is currently the 3rd largest wireless carrier in the US. The reason for Softbank’s acquisition of Sprint is because growth opportunities in the domestic wireless market in Japan have slowed over the years, whereas the US market shows promise.

There are some investors who are not too sure about Softbank taking over 70% of Sprint as the telecommunications firm is supposedly $15 billion down in debt and has incurred losses in the last 19 quarters. In fact, Softbank shares have plummeted more than 20% in Tokyo trading when the two companies started negotiations.

Regulators and Congress has given a clean chit to the deal though. The House intelligence committee dispatched a report to US companies, forbidding them to indulge in deals with Chinese telecommunications firms like Huawei and ZTE. Apparently, the telecomm giants have links with the Chinese government and might use their technology to gain information about US consumers, businesses and the government.

On the other hand, shares of Clearwire Corporation(NASDAQ:CLWR) rose 16% to $2.65, well off new highs of $2.95. The stock is down 16% in the pre-market session.

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