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Shareholders Back Sprint-SoftBank Deal

T S DISH VZ

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Sprint Nextel Corp. (S - Analyst Report) shareholders have finally given their verdict on the merger plans with Japanese telecom company, SoftBank Corp. In its recent press release, the company reported that shareholders have favored the deal through 98% votes. Once the deal is completed, the current CEO of SoftBank, Masayoshi Son, will likely serve as chairperson of the new Sprint. Both the companies expect the deal to close by Jul 2013. 

Earlier in June, SoftBank announced amendments in the buyout agreement. SoftBank raised its bid offer to $21.6 billion from its initial $20.1 billion offer in exchange of 78% stake in Sprint, up from the initial proposal of 70% holding in the company. The revised offer represented an increase of 35 cents per share in the purchase price to $7.65 from $7.30.  Sprint shareholders will now have an option to receive a cash consideration of $7.65 per share or shares in the new Sprint holding in a 1:1 ratio, subject to terms and conditions in the agreement. Apart from SoftBank, Dish Network Corp. (DISH - Analyst Report) was also a potential contender of the Sprint buyout. Dish, however, stepped aside after a failed attempt to woo Sprint shareholders.

We believe that if successful, the deal could change the dynamics of the wireless industry, which is dominated by two carriers – Verzion Communications inc. (VZ - Analyst Report) and AT&T Inc.  (T - Analyst Report).

Apart from making the market more competitive, the deal would significantly improve Sprint’s liquidity and facilitate key expansion plans that would strengthen its position. With the potential influx of capital, the company is hopeful that the Softbank deal would also aid its proposed purchase of Clearwire. If the deal materializes, gaining full rights over Clearwire would imply access to its radio frequency spectrum ranging 2.5 GHz, utilized in services that have 4G 802.16e mobile WiMAX standards.

The acquisition will support Sprint’s multi-billion dollar restructuring program known as Network Vision. Through this plan, the company is concentrating on the core Sprint platform, which includes CDMA, WiMAX and Long-Term Evolution technologies, and the eventual termination of the Nextel platform (iDEN business). Though the company has enough liquidity to address the growing costs of network upgrade, iPhone subsidies, debt maturities and working capital requirements, it needs to bolster its liquidity position for certain buyouts. The transaction would provide Sprint the financial support to build and improve its competitive wireless network.

Sprint has a Zacks Rank #3 (Hold).

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