Investors to enjoy rare gains from Sprint sale

For Sprint Nextel investors that get to cash out on 55 percent of their stock, the deal with Softbank represents the mobile-phone industry’s steepest premium in more than a decade for a company languishing at the cheapest valuation.

Japan’s third-biggest mobile-phone operator announced an agreement on Monday to buy out about 55 percent of Sprint’s stock for $7.30 a share in a deal that will ultimately give Softbank a 70 percent controlling stake and infuse the U.S. carrier with $8 billion of new capital to help reduce debt. The 36 percent premium to the stock’s 20-day average is the largest since 1999 and the third-highest on record for cellular telecommunications acquisitions of more than $5 billion, according to data compiled by Bloomberg.

Sprint CEO Dan Hesse, seeking to challenge bigger rivals Verizon Wireless and AT&T and combat the industry’s lowest price-sales ratio, secured an offer that’s more than triple the stock’s closing level in 2011. While the remaining shares will convert into only a 30 percent stake in the new company and Softbank will be able to purchase more at $5.25 apiece, the deal has wiped out a fifth of the Tokyo-based acquirer’s market value and jeopardized its credit ratings.

“It’s nice to be able to cash out,” Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York, said in a telephone interview. “Whatever uncertainty was out there about Sprint’s prospects is, for the time being, taken away. Softbank shareholders obviously don’t think much of the deal” because of “how much they’re paying and how much debt that Softbank will be taking on,” he said.

“This transaction benefits both companies by providing Softbank the opportunity to apply lessons learned in Japan to a larger, faster-growing market and create significant value for shareholders,” Scott Sloat, a spokesman for Overland Park, Kansas-based Sprint, said in an e-mailed statement. The deal also gives Sprint “significant new financial flexibility, allowing for strategic investment and supporting its development of a next-generation high-speed network.”

Softbank will pay $12.1 billion to Sprint shareholders in addition to investing the $8 billion of new capital. The $20.1 billion transaction will help Softbank add growth overseas after handset shipments in Japan tumbled 27 percent from 2007 through the end of 2011, data compiled by Bloomberg show.

Softbank also will receive a warrant to purchase 55 million additional shares in the new company at an exercise price of $5.25 a share.

Sprint’s stock closed at $5.69 yesterday. The shares won’t climb as high as $7.30 because only 55 percent are being bought out at that price, Moffett said. He estimates that the ongoing business is worth about $4 a share.

“The shares are going to trade at the blended average of the $7.30 partial tender plus what you think the stock is actually worth,” Moffett said.

Combined, Sprint and Softbank will create the world’s third-largest mobile-phone services provider by revenue, billionaire Masayoshi Son, Softbank’s president, said Monday.
Bloomberg