On October 15, Japanese tech titan SoftBank announced that it will acquire 70% of Sprint Nextel. The $20.1 billion deal will allow Sprint to compete with the two largest American wireless companies, Verizon and AT&T, by providing Sprint with $8 billion in new capital. Of the $8 billion, $3.1 billion will come in the form of a bond, to be issued by Sprint shortly after the announcement, convertible at $5.25 per share; this gives Sprint some immediate access to capital that could be used to retire some debt, improve its wireless network, and possibly to buy additional spectrum if airwaves are auctioned in the near future. The closing of the transaction is scheduled for mid 2013 and the advisers to this transaction stand to earn up to $200 million.
Of course, it’s hard not to compare this deal to AT&T’s failed attempt to buy T-Mobile for $36 billion. However, the main reason that regulators opposed the AT&T deal was because it would reduce the number of national wireless choices from four to three. SoftBank’s acquisition of Sprint will likely make regulators happy, as it would strengthen one of the four national wireless competitors. Furthermore, both Verizon and T-Mobile are at least partly owned by foreign companies (45% and 100%, respectively).
This acquisition could provide some much needed cash and spark innovative ideas in a company that has constantly been lagging behind AT&T and Verizon. The rise of Sprint as a reliable alternative to those companies would increase nationwide competition, which could not only incentivize the development of more advanced wireless network technologies, but also reduce the price of wireless services for consumers.