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After winning the U.S. Federal Communications Commission’s (FCC) approval, Sprint Nextel Corp. (S - Analyst Report) and Japanese telecom company SoftBank have finally announced the successful completion of their merger. The newly formed entity will be known as Sprint Corporation and will continue to trade with ticker symbol “S”. SoftBank will own 78% of the new Sprint while the remaining stake will be held by the existing Sprint shareholders. We expect the merger to be a catalyst for Sprint’s growth as it strengthens the company’s position against telecom giants such as AT&T, Inc. (T - Analyst Report) and Verizon Communications Inc. (VZ - Analyst Report).

We believe Dish Network Corp.’s (DISH - Analyst Report) decision to stop pursuing Sprint was a boon in disguise for the latter as it allowed SoftBank to modify its offer. In June, SoftBank raised its bid offer to $21.6 billion from its initial $20.1 billion offer in exchange of a 78% stake in Sprint, up from the initial proposal of 70% holding. The revised offer represented an increase of 35 cents per share in the purchase price to $7.65 from $7.30.

We believe the influx of capital and a restructured balance sheet will help Sprint accelerate expansion and strengthen its future. Consequently, the SoftBank deal will remain accretive to 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 future expansion. Further, this merger would also facilitate development plans in Sprint’s newly acquired company - Clearwire Corp. The buyout, which was approved by Clearwire shareholders on Jul 8, was made effective the next day.

Sprint has a Zacks Rank #3, implying a Hold rating.

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