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It’s Official: SoftBank Links Up With Sprint in $20 Billion Deal

Sprint said Monday that Japan’s SoftBank is paying $20 billion to take a 70 percent stake in the No. 3 U.S. carrier.

The deal includes $12.1 billion to be paid to Sprint shareholders, and $8 billion in new capital for the carrier. Both companies’ boards have approved the deal, SoftBank said in a press release.

Sprint had said Sunday that news was coming, after confirming the talks last week.

The deal is the second recent major transaction in the U.S. cellular industry, after T-Mobile USA struck a deal earlier this month to acquire MetroPCS in a stock and cash deal.

A Webcast is just getting under way. AllThingsD will have live coverage.

1:11 am: SoftBank CEO Masayoshi Son is speaking, talking about where Sprint is today.

1:13 am: With the deal, SoftBank will have 96 million customers in U.S. and Japan, bringing the company closer to the size of AT&T and Verizon, though it will still have far fewer customers than the two U.S. leaders.

1:18 am: SoftBank won’t be using stock for the deal, meaning no dilution for existing SoftBank shareholders, Son said.

The deal values Sprint at $7.30 a share, with current shareholders able to receive either cash or one share in the new company.

There is a $600 million breakup fee due the other party if Sprint accepts a better offer or if SoftBank doesn’t get the financing needed to complete the deal.

1:21 am: Sprint would have to pay up to $75 million in SoftBank’s expenses if its shareholders vote down the deal.

1:22 am: The deal is expected to close in mid-2013, SoftBank said.

1:22 am: Son talked about the U.S. as a growing market far larger than the Japanese market.

“The smartphone is becoming the core of mobile communication,” Son said, noting that the U.S. is a leader in the field.

U.S. customers also pay one of the highest average monthly bills in the world, just ahead of Japan.

While the U.S. has fast LTE networks, the average speeds customers are getting are actually lower in the U.S., compared with Japan, Italy and the United Kingdom.

1:25 am: The U.S. market is a duopoly, though, Son notes. For a challenger like Sprint, there is a compelling market opportunity, he said.

1:26 am: Sprint CEO Daniel Hesse now speaking.

1:27 am: Hesse notes that 70 percent of U.S. customers are prepaid, but those customers represent 90 percent of the industry’s revenue.

Sprint is distant No. 3, but fastest-growing in revenue and average revenue per users, Hesse said.

“It wasn’t always this good,” Hesse said, noting that the company was in free-fall when he took over.

“Our brand was ranked last,” Hesse said, and the company was losing one million net customers per quarter.

1:30 am: By the way, Hesse will be CEO of Sprint after the SoftBank deal, and headquarters will remain in Overland Park, Kan.

Hesse is still recapping how bad things were when he took over. He said that the company looked at all the reasons why customer service was so bad.

Every single Monday morning, Hesse said, he went over all the complaints from the prior week, and held the department heads accountable for the issues.

Sprint was last among carriers in customer service from 2007 to 2009 and is now first, Hesse said. (Here’s a story we did on the topic during a visit to Sprint HQ earlier this year.)

1:36 am: Hesse notes that the company is also posting double-digit percentage customer gains — the only major U.S. carrier doing so.

1:38 am: Hesse is now talking about how the company has cut costs. He’s making the point that the company was spending twice as much on customer care when its service was the worst. Overall general and administrative expenses have been cut in half.

Improving quality allowed the company to close 29 support call centers.

“We’re answering the phone much faster than when we had 29 more call centers,” Hesse said.

1:39 am: Did I mention it is 1:39 in the morning? #tired

1:41 am: Anyway, Hesse is talking about the benefits of shutting down Nextel’s old network.

Not sure if Hesse’s speech is new to the Japanese audience, but those who have followed Sprint for some time haven’t learned anything new.

1:42 am: Hesse said that the SoftBank deal will help the company grow as it continues in its network revamp effort, which should start being a financial benefit around 2014.

The partnership with SoftBank “gives the company opportunities internally and externally that it hasn’t had in the last few years,” Hesse said.

“This is pro-competitive and pro-consumer,” Hesse said, because it creates a stronger No. 3 player.

Of all the possible transactions, Hesse said, this was the best one for its shareholders, as well.

1:45 am: Hesse wraps up his remarks.

Masayoshi Son now back talking about Sprint’s recent performance.

Son also notes that Sprint’s share price hit a bottom around the time the iPhone 4S was launched, and has been growing since.

SoftBank had a few key questions, including, most importantly, whether the deal would pay off.

Son says Sprint was already making progress on its turnaround. On top of that, Son notes that SoftBank will add capital and insight.

There are also synergies when it comes to purchasing devices and building LTE networks.

Son notes that SoftBank showed its turnaround capabilities in the way it improved its fixed-line business, as well as its acquisition of Vodafone KK.

SoftBank also turned around Willcom, Son said. One turnaround might be a coincidence, but doing it three times shows SoftBank has an ability to help companies.

1:56 am: The combined company will have increased purchasing power from both phone makers and network gear providers, Son said.

2:11 am: Had some technical problems there, but back now. Talk has been centered on the impact of debt for both SoftBank and Sprint.

2:13 am: With interest rates so low, now is the time to buy companies, Son said.

Son wraps up, noting that the deal will also result in better products and services for customers.

2:15 am: At long last, on to Q&A.

First question is whether the deal will improve connectivity for customers.

Son notes improvements SoftBank is making in Japan that will help. The company now has the “platinum band” spectrum it needs, as well as the money it needs to take advantage of it.

2:21 am: Next question asks what SoftBank’s long-term plan is — to be No. 1 in U.S., to be No. 1 globally?

Son: With this transaction, SoftBank’s revenue will be No. 3 globally. Son says that, as a person, he always wants to be No. 1, but everything has steps, and this is the first step.

“I’d like to make this partnership a big success first,” Son said.

2:24 am: Asked when the company began thinking about a deal, Son said it had been looking at Sprint specifically for only a few months.

However, Son said that the company had been eyeing deals beyond Japan since acquisition of Vodafone KK several years ago. “The time has come, I believe,” Son said.

2:26 am: What about MetroPCS or Clearwire?

“I cannot rule out any possibilities,” Son said. “Anything can happen.”

Maybe the company will buy Japanese rival DoCoMo, Son noted. He doesn’t want to speculate on any further acquisitions.

Hesse notes that Sprint is a large investor in Clearwire, but nothing in SoftBank deal requires Sprint to make a further deal with Clearwire or any other company.

2:31 am: As for how Sprint will use the money from SoftBank, Hesse said there are a variety of options, and the company will look at external and internal expansion opportunities and make those decisions at a later date.

2:33 am: Son is asked how the company will share its know-how with Sprint and vice versa.

Hesse will remain as CEO, Son said, but added that he is committed to helping Sprint.

“I aspire to be No. 1, and I want to be No. 1, eventually,” Son said, adding that his goal remains to be larger than rival DoCoMo.

2:38 am: The Wall Street Journal’s Daisuke Wakabayashi asks Hesse and Son why the deal is structured the way it is, rather than as a full takeover.

As for the deal structure, Son said there were a lot of other possibilities considered.

The format SoftBank chose ensures that the company will get exactly a 70 percent stake, as opposed to the uncertainty of a more traditional tender offer.

By not doing a full takeover, Sprint will remain a U.S. public company, which will improve its access to capital, Son noted.

“I think the deal we announced is more transparent,” Son said.

Hesse said the $8 billion infusion into the company makes the new Sprint a “much, much stronger company,” with a similar balance sheet to AT&T and Verizon.

If all investors opt for maximum cash, they would get 55 percent in cash and 45 percent in stock.

2:46 am: Is there an opportunity for more consolidation?

Hesse reiterated that he sees more consolidation ahead in the U.S. market, and said the deal gives Sprint an opportunity to take part in that.

Hesse said that deals that don’t involve AT&T and Verizon are good for the industry, and good for consumers.

2:51 am: Does the Sprint deal signify that SoftBank is changing focus from being an Asian Internet company to being a global telecommunications company?

I will not slack on efforts to be No. 1 in Asia as an Internet company, Son said.

However, Son notes that the U.S. is a key market, and a leader in things such as LTE.

“I want to be part of that evolution in the United States,” Son said.

2:55 am: So, did Sprint or SoftBank do the approaching?

“Always I am the proposer,” Son said.

2:58 am: Hesse said Son approached Sprint some months ago. “Our board considered a number of possible strategic alternatives — partners and options,” Hesse said, and determined that this was the best.

2:59 am: And, with that, the press conference wraps up.


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