Softbanks $20.1 billion investment in Sprint Nextel is
the largest US inbound acquisition by a Japanese company. But
whats especially interesting is that the target remains a
Softbanks acquisition of a 70% stake in the USs
third-largest wireless operator signals the Japanese
companys intent to move into the USs wireless
space, long considered a duopoly. Moreover, the deal structure
allowed the company to remain listed.
Morrison & Foerster Tokyo managing partner Kenneth
Siegel, who advised Softbank, said that this represents one of
the first times a major Japanese acquisition has remained
Virtually all major Japanese acquisitions have been
for significant minority stakes or full take-privates, he
said. Its unusual for a Japanese acquirer to leave
the target public with a view that it will add value through
strategic advice and capital support.
Moreover, Siegel said that Softbanks acquisition of
Sprint represents an enormous commitment to expand globally
based on its success in the Japanese market.
Softbank has been successful given the duopoly of KDDI
and NTT DoCoMo, and saw a similar market structure in the US
but with dramatically better growth prospects, he
But Siegel added that Softbank wanted to ensure that Sprint
had a strong balance sheet from the announcement date. The
company has significant debt and capital requirements going
forward so there was an interest in identifying a structure to
recapitalie the company on both a short-term and long-term
basis, he said.
Ultimately the transaction required
a complex structure with Softbank paying $12.1 billion to
Sprint shareholders and injecting a further $8 billion in
capital to strengthen Sprints balance sheet.
Softbank formed a US holding company with two subsidiaries:
one named Starburst II (New Sprint) which is directly owned by
the holding company, and one owned directly by New Sprint,
named Starburst III.
Softbank, via New Sprint, invested $3.1 billion into
newly-issued Sprint convertible bonds following the
announcement. Before the merger, the bond will be converted
into shares of Sprint that will represent 16.4% of outstanding
Sprint common shares.
Following regulatory approval, SoftBank will invest $17
billion into New Sprint. This figure will be divided, with $4.9
billion being used to purchase newly-issued common shares of
New Sprint, and $12.1 billion to purchase 55% of outstanding
Sprint shares from Sprint stockholders. The remaining shares
will be converted into shares of New Sprint.
Although foreign investment into sensitive sectors in the US
has recently hit hurdles, this transaction seems relatively
straightforward. Siegel noted that Federal Communication
Commission (FCC) regulations require that any transfer of an
FCC licence be in the public interest. Softbank must be able to
demonstrate to the Commission that the transaction meets this
Moreover Siegel said that a number of other major US
telecommunications companies are owned or controlled by other
investors from WTO countries, so an investment of this kind by
a Japanese company shouldnt cause concerns. A key example
is Deutsche Telekoms 2001 purchase of T-Mobile.
media reports have noted that 10% of capital expenditure by
Softbank goes to Huawei and ZTE for equipment. To counter
national security concerns about these companies
Sprint will not buy equipment from these manufacturers.
Siegel said that Japanese companies will be increasingly
active on the global stage, and that this is the perfect
environment for outbound M&A.
Japanese companies will easily complete over $50
billion in M&A this year, and are going to be increasingly
active on the global stage, he said. The companies
are well capitalised, their currency is strong and the economy
is stable enough for them to invest abroad based on a
comfortable capital and business position
Morrison & Foerster was lead counsel to SoftBank,
with Mori Hamada & Matsumoto as Japanese counsel, Dow
Lohnes as regulatory counsel, Potter Anderson Corroon as
Delaware counsel, and Foulston & Siefkin as Kansas counsel.
Skadden Arps Slate Meagher & Flom advised Sprint. Lawler
Metzger Keeney & Logan acted as regulatory counsel and
Polsinelli Shughart advised Sprint on Kansas law
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