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Sprint, Softbank Clear a Hurdle

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Japan’s SoftBank Corp., which plans to take over Sprint Nextel Corp. (S - Free Report) , the third-largest wireless carrier in the U.S., cleared a major hurdle by reaching an agreement with the U.S. government officials regarding the country’s security matters.

Per the agreement, the U.S. government will have the authority to assess the equipment purchased by the potential merged entity (Sprint and SoftBank) from any foreign vendor. Such a move initiated by the U.S. government will protect the nation from a cyber security threat.

Sprint’s sister concern – Clearwire Corporation – uses Huawei manufactured products on its network. Similarly, SoftBank also uses Chinese built equipment on its network. Thus, the U.S. government anticipates a cyber threat.

In order to counter such a threat, the U.S. government will create a four-member team representing government officials, which will evaluate all the future equipment deals for Sprint once it gets merged with SoftBank. A Sprint board member will also be in the team, thereby offering more transparency. SoftBank has also decided to do away with Chinese equipment once the merger is accomplished.

Japan-based SoftBank proposed to buy 70% of Sprint’s stake for a total consideration of $20.1 billion, subject to approvals. SoftBank has cleared almost all the hurdles except securing Sprint’s shareholders’ vote of confidence and the final approval from the FCC.

DISH Network (DISH - Free Report) , which had earlier made a counter offer of $25.5 billion to acquire the full stake of Sprint, is now voicing concerns about national security related to the Sprint and SoftBank merger.

Despite DISH Network’s concern over cyber threats, we believe that the deal will finally mature as the country lacks sufficient spectrum strength. So, the U.S. government is supporting the merger. A few days back, the U.S. telecom sector saw another important merger of T-Mobile USA and MetroPCs. The newly merged entity is presently called T-Mobile US, Inc.(TMUS - Free Report) . So, it is highly anticipated that in near future many such merger will take place in the U.S.

Currently, Sprint has a Zacks Rank #3 (Hold).

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