(By Balaseshan) Sprint Nextel Corp. (NYSE:S) shares gained 1.75% in premarket trading on Monday after Japanese mobile carrier Softbank has agreed to buy a 70% stake in the telecom services provider for about $20.1 billion.
Softbank's investment consists of about $12.1 billion to be paid to Sprint shareholders and $8.0 billion of new capital, which will be used for Sprint's mobile network, strategic investments and balance sheet as part of its continued efforts to fortify its operating base towards future growth.
Sprint's headquarters will continue to be in Overland Park, Kansas and its current Chief Executive Dan Hesse will be the CEO of New Sprint. New Sprint is anticipated to succeed Sprint's New York Stock Exchange listing as a publicly traded company.
Softbank said the deal is fully funded by cash at hand and a bridge financing facility arranged and underwritten by Mizuho Corporate Bank, Ltd., Sumitomo Mitsui Banking Corp., the Bank of Tokyo-Mitsubishi UFJ, Ltd. and Deutsche Bank AG, Tokyo Branch.
The transaction, which is approved by the boards of directors of Softbank and Sprint, is expected to be closed in mid-2013.
Earlier last week, Japan's Nikkei newspaper reported that SoftBank hopes to use the acquisition as a base for entering the U.S. market. Earlier this month, Softbank agreed to acquire smaller local rival eAccess Ltd. for $1.84 billion to strengthen the infrastructure of its Long-Term Evolution, or LTE, network.
Kansas-based Sprint Nextel offers its wireless services under the Sprint, Boost Mobile, Virgin Mobile, payLo, and Assurance Wireless brands. Sprint, led by Hesse, served more than 56 million customers at the end of the second quarter of 2012.
Sprint postpaid net additions amounted to 442,000 and post paid churn rate improved to 1.69% from 1.72% last year. Average revenue per user (ARPU), a key metric for telecom companies, rose 16% to $63.
Media reports indicate that Sprint had been considering its own acquisition of MetroPCS (NYSE:PCS), or a merger with T-Mobile. Sprint has been actively courting both T-Mobile and MetroPCS, which makes this merger a bit of a surprise. Should a T-Mobile/PCS combination be consummated, Sprint would benefit competitively due to the significant potential for operational distractions.
MetroPCS and T-Mobile, an arm of Germany's Deutsche Telekom, agreed to combine in a reverse merger transaction announced last week.
S closed Friday's regular session down 0.52% at $5.73. The stock has been trading between $2.10 and $6.04 for the past 52 weeks.