Bits Blog: SoftBank Chief Hints at More Price Cuts for Sprint

Franck Robichon/European Pressphoto Agency Masayoshi Son, SoftBank’s chief executive, has been behind a sharp decline in prices for broadband and cellphone services in Japan.

Sprint’s new unlimited wireless plan, announced last week after its $21.6 billion acquisition by Japan’s SoftBank, did not deliver the aggressive price cuts that some analysts had expected.

But cheaper plans could be coming.

In a phone interview, Masayoshi Son, SoftBank’s chief executive, hinted that further price cuts could be in the works as the company invests to upgrade Sprint, America’s No. 3 wireless carrier.

“We will be aggressive in technology, price packages, services on every front,” Mr. Son said from California on Wednesday. “At the same time, we will improve the network to be the world’s best,” he said.

SoftBank, the Tokyo-based Internet and mobile communications giant, has a reputation in Japan for undercutting rivals on price to gain market share. Mr. Son has been behind a sharp decline in prices for broadband and cellphone services in Japan.

Expectations are high that Mr. Son will bring that strategy to Sprint, which has struggled with subscriber defections for years and that Mr. Son will inject healthy dose of competition to America’s mobile industry.

But Sprint’s price cuts have not been particularly groundbreaking, and executives have said the cuts were in the works before the SoftBank acquisition.

Under Sprint’s new wireless plan, customers pay $80 a month for unlimited data, texting and calling, down from the $110 Sprint had charged for a similar pricing.

“This is not the ‘magic behind the black curtain’ moment that many were waiting for with SoftBank,” Jennifer M. Fritzsche, senior analyst at Wells Fargo Securities, wrote in a research note on July 12.

Sprint remains under pressure from T-Mobile USA, the No. 4 wireless network, which has been offering a $70 package for unlimited talk, text and data from earlier this year.

Verizon, the industry leader, offers a shared data plan with unlimited talk and text messages for $90 a month, while AT&T, the No. 2 network, has a similar plan for $85.

Mr. Son has said that he planned to invest $16 billion in Sprint over the next two years to shake off competition from T-Mobile while also closing the gap with Verizon and AT&T.

Most of that investment will be spent on base stations for Sprint’s advanced LTE network, he told the Nikkei newspaper earlier this month.
And if SoftBank’s past antics in Japan are a clue, Mr. Son could also start driving down prices.

Confidence From Chief of SoftBank in Sprint Bid

But the next move by Masayoshi Son, SoftBank’s founder and chief executive, astounded corporate Japan. Mr. Son plunged deeper into debt to acquire Vodafone’s Japanese cellphone unit for about $15 billion — Japan’s largest leveraged buyout at the time — to muscle his way into the mobile market.

SoftBank is now one of Japan’s biggest companies — its market capitalization is three times that of Sony’s — and Mr. Son is confident that his plan to break into the American mobile market with a $21.6 billion bid to buy Sprint will be easy.

“We’ve fought far tougher battles than this,” Mr. Son told investors on Friday in Tokyo at SoftBank’s annual general meeting. Hours earlier, a rival bidder for Sprint had confirmed it was ending its pursuit of the mobile network, America’s third-largest. “It’s just been so much easier this time round,” he said.

Most analysts agree that Mr. Son, who seems set to acquire Sprint along with its Clearwire unit, faces long odds as he seeks to compete in the American mobile market. But his record for taking on giant companies — and coming out on top — bodes well for his chances, they say.

“Mr. Son is simply the most talented and audacious businessman Japan has ever produced,” said Kazuo Noda, chairman of the Japan Research Institute. “And when he goes into a new market, he doesn’t just take on the big guys. He changes all the rules.”

It is Mr. Son’s background as an outsider in Japanese society that makes him so willing to take risks, people who know him say, including Mr. Noda, who first met Mr. Son, then a college graduate, three decades ago.

A third-generation Korean-Japanese, a minority group that still faces discrimination in Japan, Mr. Son has spoken of his roots in a slum on the southern island of Kyushu. But after his family’s fortunes improved, he made his way to the United States.

At high school and then at college in California, Mr. Son was dazzled by an entrepreneurial culture that he said he felt had been lost in Japan. And most of all, he was persuaded the world was about to experience a revolution in information technology.

Mr. Son founded SoftBank in 1981 first as a publisher of computer magazines, then as a successful distributor of computer software. Using money from that business, Mr. Son made a series of investments in the early 1990s, including a one-third stake in what was then a little-known American start-up named Yahoo. That bet paid off, giving Mr. Son money to expand his empire as Yahoo’s share price climbed.

But Mr. Son burst into the big leagues in the 2000s, buying a stake in a bankrupt bank, a small telecommunications company, a baseball team and a part of Alibaba of China, now the world’s largest e-commerce company

When SoftBank began offering fast DSL Internet service in Japan in 2001, it took on losses to undercut competitors’ prices by half. Government officials fretted that the price war would cripple the entire market. But consumers loved the sharp fall in prices, and the DSL market grew almost thirtyfold in two years.

Around that time, Mr. Son also started pushing the Japanese government to let SoftBank into the country’s highly regulated mobile sector, dominated by NTT DoCoMo, a subsidiary of the former state telecommunications monopoly. When his demands were snubbed, Mr. Son took the Ministry of Internal Affairs and Communications to court, accusing it of colluding with NTT to shut out competition.

The ministry eventually agreed to talks, but ultimately gave SoftBank a license to an inferior spectrum. Mr. Son, furious, turned to Plan B. In March 2006, SoftBank announced it would acquire Vodafone’s struggling Japanese unit, borrowing 1.2 trillion yen ($10.3 billion at the time) to finance the purchase. A day later, Mr. Son returned his original license to the government.

DealBook: Sprint and SoftBank Shore Up Defenses Against a Dish Counterbid

In raising its bid for Sprint Nextel, SoftBank of Japan is doing its best to make sure Dish Network will have a harder time fighting back.

Announced late on Monday, SoftBank’s new offer will give shareholders additional cash, bumping up the effective value of the deal to about $7.48 a share from $6.30 a share. That’s significantly above the $7 a share that Dish had proposed.

In exchange for that higher price, however, SoftBank requested and received a number of tougher protections. Chief among them is a new stipulation that any superior counterproposal have fully committed financing, which would force Dish to sign papers with its lenders.

While the satellite television company has said that it has the money — it has assembled some $9.3 billion in debt from a group of banks — it hasn’t provided formal commitment letters to its would-be merger partner.

Sprint has also put into effect a shareholder rights plan, commonly known as a poison pill, that effectively limits any one investor outside of SoftBank from owning more than 17 percent of the cellphone service provider. That helps prevent Dish from trying to make an end run around the board by making a tender offer directly to Sprint shareholders, much as it is doing at the wireless network operator Clearwire, of which Sprint is seeking full control.

Both are meant to try to box in Dish and its chairman, Charles W. Ergen, who have confounded Sprint and SoftBank with assaults on a number of fronts. Beyond bidding for Sprint itself, Dish also topped the company’s bid for Clearwire shortly before a shareholder vote on Sprint’s offer.

And with SoftBank prepared to close its offer around July 1, it is betting that it can win over shareholders with additional certainty. Any Dish bid is likely to take months to close, primarily because of a lengthy and complex review by the Federal Communications Commission.

But in some ways, Dish has already forced SoftBank into a more uncomfortable position. SoftBank shifted about $3 billion worth of cash from a planned infusion into Sprint to payouts to Sprint’s shareholders. While that won over skeptics like Paulson & Company, Sprint’s second-biggest shareholder, it will take away from a planned transfusion of money meant to strengthen the cellphone service provider and finance an overhaul of its data network.

It will also leave Sprint carrying more debt, though less than it would with the proposed Dish offer.

And thanks to Dish’s $4.40-a-share bid for Clearwire, the smaller telecommunications company’s stock is trading well above the $3.40 a share that Sprint is offering, just days before a shareholder vote on the proposal. Sprint and SoftBank haven’t announced any plans to raise their bid yet, though SoftBank has said that it would be fine with owning 65 percent of Clearwire instead of the entire company.

On the other hand, Dish’s coy approach appears to have cost it ground as well. Among the points of contention between it and Sprint was the size of the breakup fee in any deal between the two companies, according to a person briefed on the matter. While Dish had offered a payout of about $1 billion if a merger fell apart because of regulatory concerns, Sprint wanted about $3 billion to provide extra comfort.

It’s unclear what Dish will do next. The company’s current bid already envisions adding a significant amount of debt onto Sprint’s balance sheet, and some analysts have questioned whether any cost savings from a merger of the two could support ladling on more debt. That said, Dish has argued that the debt level would be manageable.

For now, Dish has said that it’s evaluating the new SoftBank offer as it considers its options.

DealBook: SoftBank Raises Bid for Sprint to $21.6 Billion

Toru Hanai/ReutersA SoftBank branch in Tokyo.

9:58 p.m. | Updated

SoftBank of Japan agreed late on Monday to increase its takeover bid for Sprint Nextel to $21.6 billion, seeking to block a rival bid by Dish Network.

Under the revised terms of the complex transaction, SoftBank agreed to shift over about $1.5 billion earmarked for Sprint itself to the company’s shareholders instead. Existing investors can now sell their shares at $7.65 apiece, up nearly 5 percent from the first offer.

All told, the new offer is valued at about $7.48 a share, up almost 19 percent from the original bid. SoftBank would own about 78 percent of Sprint if the deal is approved.

Sprint added that it had ended sales talks with Dish, which surprised many in April by offering $25.5 billion for all of the cellphone service provider, or about $7 a share. In a statement, Sprint said Dish had failed to put forward an acceptable formal bid despite weeks of conducting due diligence.

The new proposal by SoftBank, cobbled together largely over the weekend, is aimed at preserving SoftBank’s biggest gamble: buying control of Sprint to challenge the existing titans of the American cellphone market, AT&T and Verizon Wireless. Its plans included infusing Sprint with billions of dollars to build out a nascent high-speed data network.

SoftBank reiterated that it intended to invest $1.9 billion in Sprint if its deal closed, in addition to the $3.1 billion it already invested into the company.

The Japanese company has been frustrated by the emergence of Dish as a bidder, which has sought to stymie that plan on a number of fronts. Led by Charles W. Ergen, Dish network’s chairman, has contended that its deal would create a new behemoth that could offer a variety of wireless services, like cellphone coverage and satellite TV.

Shares in Sprint have traded above SoftBank’s previous offer, the result of investor dissatisfaction. The company’s stock closed on Monday at $7.18, before the new proposal was revealed.

SoftBank is betting that its improved offer will knock out its rival. Among its advantages is the speed with which the deal can be closed: SoftBank expects to close the transaction early next month, while Dish would most likely need months to complete its bid.

“The amended agreement announced today delivers more upfront cash to Sprint stockholders, while still achieving our goal of creating a well-capitalized Sprint that is better positioned to bring meaningful competition to the U.S. market,” Masayoshi Son, SoftBank’s chief executive, said in a statement.

The deal has been approved by a special committee of Sprint’s board. A vote on the proposed sale has been rescheduled from Wednesday to June 25.

The offer may be enough to win over Sprint investors who were skeptical of the previous bid. Paulson & Company, the hedge fund that is the company’s second-biggest shareholder, said in a statement that it would support the new SoftBank offer.

Still, Dish has until June 18 to propose an acceptable “best and final” bid. The amended agreement with SoftBank puts in place a number of additional restrictions, including forcing Dish to present fully committed financing and the adoption of defenses that would limit a hostile bid.

DealBook: I.S.S. Backs Sprint’s Deal With SoftBank

The biggest of the proxy advisory firms, Institutional Shareholder Services, lent its support to Sprint Nextel‘s proposed sale to SoftBank of Japan late Friday, amid ongoing criticism of the deal by investors and a rival bid by Dish Network.

In its report, I.S.S. found that SoftBank’s offer fairly valued Sprint and provided much-needed capital that would help the wireless provider expand its network and turn around its long-struggling fortunes.

“Given the strategic merits of the SoftBank transaction, the sales and negtiation process overseen by the board, the strength of the valuation relative to precedent transactions, and the market reaction, a vote for the transaction is warranted,” I.S.S. wrote.

The recommendation by I.S.S. may influence many of the institutional investors that own shares in Sprint ahead of a scheduled meeting on June 12. The shareholder vote is considered the last major hurdle for the deal: Sprint and SoftBank received national security clearance for the offer earlier this week, and the Federal Communications Commission is expected to rule within days.

Some shareholders have questioned whether SoftBank’s offer values the cellphone service provider highly enough.

SoftBank is offering $7.30 a share in cash. It already invested $3.1 billion in Sprint last fall, providing capital that helped shore up the American company and financed a separate bid for an affiliated network operator, Clearwire. And if the deal is approved, it will invest an additional $4.9 billion.

If the deal is approved, SoftBank would own 70 percent of Sprint.

All told, I.S.S. values SoftBank’s bid at $6.45 a share, a level the proxy adviser finds reasonable.

By contrast, Dish’s takeover bid is offering $7 a share for Sprint in cash and stock. I.S.S. did not take a position on Dish’s rival $25.5 billion bid, citing the Sprint board’s ongoing discussions with the satellite TV company and the preliminary public details of the offer.

But I.S.S. did pose questions about whether a combined Dish and Sprint, which would carry more debt, would be able to afford the necessary expenses to improve the cellphone service provider’s network.

Shares in Sprint closed on Friday at $7.30 a share, suggesting that investors are expecting a bump from either side.

DealBook: SoftBank Chief Is Defiant as Dish Challenges His Bid for Sprint

Yuya Shino/ReutersMasayoshi Son, the chief of SoftBank, the Japanese telecommunications company.

Earlier this month, Charles W. Ergen’s Dish Network made a bold bid to pre-empt Softbank’s $20 billion bid for Sprint Nextel with its own offer.

But SoftBank‘s outspoken chief executive, Masayoshi Son, said on Tuesday that his proposal would prevail — unmodified.

It is the first time that the Japanese telecommunications mogul has spoken out since Dish surprised many with a $25.5 billion offer for Sprint, the country’s third-biggest cellphone service provider.

Dish has said that its cash-and-stock bid for all of Sprint, valued at $7 a share, would create a new wireless titan whose phone, data and video services would rival those from Verizon Wireless and AT&T.

For now, Mr. Son insists that his proposal, a two-step process that would leave 30 percent of Sprint publicly traded, is straightforward and can be closed by mid-July. (The first part of the process, in which SoftBank invested $3.1 billion in the American company to keep it afloat, has already been competed.)

“Charlie’s proposal does not provide any new cash into the company, and it provides heavy burden of debt,” Mr. Son said in a telephone interview. “I believe our deal will go through.”

Mr. Son insisted that he was not surprised by the arrival of Mr. Ergen, who has publicly amassed a cash hoard that many assumed would finance some sort of acquisition. Though Dish had already made a play for Clearwire, Mr. Son said he guessed that the satellite-TV company had even bigger ambitions.

“My guess was right,” he said.

He repeatedly attacked Dish’s bid as unworkable and his rival’s numbers as misleading. By his own reckoning, factoring in both cost savings and potential costs like delays, SoftBank’s offer was worth $7.65 a share, while Dish’s was valued at $6.31.

Chief among Mr. Son’s criticisms was the amount of debt that the interloping offer would pile on to Sprint, which he estimated at $50 billion. In a long presentation to SoftBank’s shareholders, Mr. Son argued that his proposal would increase Sprint’s debt by three times, while Dish’s would do so by nearly six times.

“It would be prohibitively high debt,” he said.

Dish has proudly trumpeted the amount of wireless spectrum the combined company would control, but Mr. Son said that the holdings would be wastefully excessive and expensive to maintain. And it would still require spending what he estimated was $6 billion to upgrade Sprint’s network.

And Mr. Son contended that Mr. Ergen, a wily deal maker whose net worth Forbes estimates is more than $10 billion, is an amateur when it comes to the mobile industry. By contrast, he pointed repeatedly to SoftBank’s rise over the last seven years to become one of Japan’s three biggest wireless companies.

Still, much of SoftBank’s hopes are tied to Sprint’s bid to buy the remainder of Clearwire, an offer that has drawn significant shareholder opposition.

Mr. Son dismissed concerns about the proposal’s fate, saying that Sprint has not signaled any desire or need to raise its offer of $2.97 a share. The company can’t raise its bid without the blessing of its benefactor, SoftBank.

In the worst-case scenario, Sprint will raise its ownership in Clearwire to about 65 percent from 50 percent through agreements to buy out partners in the company, including Intel and Brighthouse.

Speaking of dissident investors who think Sprint’s offer is too low, Mr. Son said, “They can stay as shareholders for however long they want. We are happy with just 65 percent.”

DealBook: Softbank of Japan to Buy Rival eAccess for $2.3 Billion

Yoshikazu Tsuno/Agence France-Presse — Getty ImagesMasayoshi Son, right, president of Softbank, the cellphone service provider that brought Apple’s iPhone to Japan.

Softbank, the cellphone service provider that brought Apple’s iPhone to Japan, said on Monday that it would buy a smaller rival, eAccess, for about $2.3 billion in stock, in the face of intensifying competition.

Under the terms of the deal, Softbank will pay 52,000 yen a share, more than three times the eAccess closing price of 15,070 yen on Friday.

The large premium reflects Softbank’s desire to bolster its mobile broadband capacity as it looks to attract more smartphone users. After the deal, Softbank would have more than 39 million subscribers, making it the second-biggest network operator in Japan, behind NTT DoCoMo.

“We do not think our shareholders will view this as a bad tie-up,” Softbank’s chief executive, Masayoshi Son, said in a statement. “I never liked third place. We fought for No. 2, and someday, we will be No. 1.”

Shares in eAccess rose 26 percent on Monday, to 19,000 yen, while those in Softbank slumped 1.7 percent, to 3,105 yen.

The deal underscores Japan’s changing mobile phone industry.

Softbank brought the iPhone to Japan, winning an exclusive contract with Apple in what some analysts described as a coup. While Softbank trailed KDDI by over 10 million subscribers at the time, Softbank has rapidly expanded its user base on the back of the explosive popularity of the iPhone.

But Softbank is now dealing with a more crowded field. Last year, KDDI began offering the popular Apple smartphone as well.

Since then, Softbank, whose networks are under pressure from the surge in smartphone users, has experienced a steady trickle of customers switching to KDDI, where users reported faster network speeds.

With the eAccess acquisition, Softbank will extend its Long Term Evolution services, a next-generation high-speed wireless network that is compatible with the iPhone 5. The deal will give Softbank 50 percent more LTE base stations, increasing them to an expected 30,000 by March.

“There is a severe battle going on,” Mr. Son said. “It’s all about who can expand the network fastest.”