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: Dish Says It Won’t Submit a New Offer for Sprint

Andrew Kelly/ReutersA Sprint store in New York.

Dish Network said on Tuesday that it would not submit a new takeover bid for Sprint Nextel ahead of a deadline imposed by the company and would instead focus on its bid for a stake in Clearwire, a smaller wireless operator. That appeared to leave Sprint free to complete the sale of a majority stake to SoftBank of Japan for $21.6 billion.

In a statement, Dish said that it still saw merit in a merger with Sprint, which would help it move into cellphone service. But conditions imposed by Sprint’s revised bid with SoftBank made it “impracticable” to put together a counter bid ahead of the 11:59 p.m. deadline.

Among those requirements, which Dish criticized as “extreme deal protections,” were a shareholder rights plan that limited outside investors other than SoftBank from owning more than 17 percent of Sprint and a demand that any rival bid have fully committed financing.

“We will consider our options with respect to Sprint, and focus our efforts and resources on completing the Clearwire tender offer,” Dish said in a statement. Representatives for Sprint and SoftBank did not have immediate comment.

The revised proposal with SoftBank made it more difficult for Dish to compete. One of Sprint’s biggest shareholders, the hedge fund Paulson & Company, has publicly lent its support to the offer.

While Dish may still be weighing a last-minute way to stymie SoftBank, it has a stronger path to victory by pursuing its bid for Clearwire. Last week, Clearwire endorsed Dish’s offer to pay $4.40 a share, switching from Sprint’s proposal of $3.40 a share.

While Dish cannot buy all of Clearwire — Sprint already owns about 50 percent, and is set to raise that stake to about 65 percent through agreements with other big shareholders — it stands to gain a significant say in the governance of the company. And it will have additional leverage with Sprint.

That matter is not resolved yet. Sprint sued Dish and Clearwire in Delaware’s Court of Chancery on Monday in an effort to block their deal, contending that the transaction violates an existing shareholder rights agreement.

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.

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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.”

Sprint Posts Higher-Than-Expected Revenue

Sprint, the No. 3 American wireless provider after Verizon and AT&T, recorded higher-than-expected revenue, but it said the Nextel network shutdown was stunting growth in its remaining network because large business customers were leaving.

Sprint added only 12,000 customers to its network, compared with the analysts’ average estimate of almost 198,000 customers.

The company’s top priority is to persuade Nextel customers to move to the Sprint network ahead of the shutdown at the end of this quarter. Some Nextel business clients also canceled subscriptions to Sprint’s remaining network, the company’s chief executive, Dan Hesse, told analysts in a conference call.

Including the Nextel network defections, Sprint lost 560,000 subscribers, compared with the analysts’ average estimate of a loss of almost 525,000.

By contrast, Verizon Wireless, the top American cellphone company, added 677,000 subscribers in the quarter, and the second-ranked AT&T added 296,000.

Sprint reported that its first-quarter loss narrowed to $643 million, or 21 cents a share, from $863 million, or 29 cents a share, a year earlier. Analysts had expected on average a loss of 33 cents a share, according to those surveyed by Thomson Reuters.

Sprint’s revenue rose to $8.79 billion from $8.73 billion. Analysts had expected $8.71 billion.

The company now expects 2013 adjusted operating income before depreciation and amortization to reach the high end of its previously announced goal of $5.2 billion to $5.5 billion, excluding costs of closing strategic transactions.

Sprint’s board is evaluating a $25.5 billion acquisition offer from Dish, a satellite TV service, which has challenged the company’s October agreement to sell 70 percent of itself to SoftBank for $20.1 billion.

During a conference call with analysts, Sprint did not comment on the Dish offer but it said the SoftBank deal could close as soon as July 1.

DealBook: T-Mobile Deal for MetroPCS Adds Pressure on Sprint

By clinching a deal to buy MetroPCS, T-Mobile USA is aiming not only to survive but also to turn up the pressure on its larger rival, Sprint Nextel.

The merger, formally announced on Wednesday, signals a renewed phase of jockeying among cellphone service providers as they race to draw in more smartphone users and upgrade to the latest high-speed data networks. And by taking one of the most attractive takeover targets, MetroPCS, off the table, T-Mobile may have strengthened its hand at the expense of Sprint.

The cellphone service industry is dominated by the virtual duopoly of Verizon Wireless and AT&T, which together claim 199 million customers, more than their next six competitors combined. That has left Sprint and T-Mobile to scramble, trying to undercut their big rivals on price even as they seek additional wireless spectrum that would support high-speed data networks.

The industry has long looked to consolidation to grow; last year, AT&T unsuccessfully sought to buy T-Mobile for $39 billion, hoping to gain size and spectrum. Growth via merger also underpinned Sprint’s aborted attempt to buy MetroPCS this year, a transaction scrapped at the 11th hour by Sprint’s reluctant board.

MetroPCS represents a potentially big lost opportunity for Sprint. The two companies use the same network technology (CDMA), which would have made for a relatively smooth integration of customers and devices. T-Mobile runs on GSM, so the company will have to convert MetroPCS’s 9.3 million customers to its technology over the next three years.

CLOSING THE GAP If the parent company of T-Mobile USA buys MetroPCS, the combined unit would have the fourth most cellular subscribers.

The newly enlarged T-Mobile will have about 42.5 million customers, compared with Sprint’s 56 million. But the merger could potentially give T-Mobile additional clout to demand popular devices like the iPhone, which it does not now carry. Adding MetroPCS will also help T-Mobile build out more quickly its Long Term Evolution network, the speedy data standard that powers the latest batch of smartphones.

T-Mobile executives argue that the unified operator can offer unlimited data and cheaper prepaid service plans to more customers.

“When you look at this as an industry, we are the alternative choice for consumers,” John J. Legere, the company’s chief executive, said in a telephone interview. “This can only be good for the industry to think about the competition and consumer.”

T-Mobile’s parent, Deutsche Telekom, and MetroPCS held on-and-off discussions about a merger for years, according to people with direct knowledge of the matter who spoke anonymously because they were not authorized to speak publicly about private discussions. But after Sprint’s board vetoed a takeover of the smaller service provider, T-Mobile and MetroPCS met early this summer to begin formal discussions about a deal.

Weeks of negotiations ensued, leading to a structure in which Deutsche Telekom would own 74 percent of the combined entity through a complicated stock swap. Existing MetroPCS shareholders will also receive $1.5 billion through a special dividend, worth about $4.09 a share.

And while antitrust officials fiercely opposed AT&T’s takeover of T-Mobile, people involved in the MetroPCS transaction argued that Wednesday’s deal was more likely to pass regulatory muster. Instead of fortifying one of the country’s biggest service providers, it will bolster one of its weaker ones.

A spokesman for Sprint declined to comment.

With T-Mobile claiming MetroPCS, Sprint is likely to find itself even harder pressed to build out its next-generation network and pitch itself as the dominant low-cost service provider. Sprint’s chief executive, Daniel R. Hesse, has said he expects to participate in mergers within the industry, but few attractive takeover targets remain.

Shares in Leap Wireless International, a smaller competitor often cited as a likely deal partner, plummeted nearly 18 percent on Wednesday, as investors shook off hopes that it would be acquired anytime soon. The company, a prepaid service provider, operates largely in less-attractive markets and is in the midst of a turnaround effort.

“I don’t think that Leap would provide all that much,” Charles S. Golvin, an analyst at Forrester Research, said by telephone.

While some analysts have speculated about whether Sprint would try to outbid T-Mobile for MetroPCS, some industry deal makers were skeptical of the company’s will to revisit a target it had already left at the altar.

Sprint is still scarred by the merger that produced its current incarnation: its 2005 union with Nextel Communications, an example still used in business schools as a classic case of a bad deal.

The tie-up was marred by incompatible phone networks and infighting. As a result, Sprint slipped further behind Verizon and AT&T in market share.

Sprint may still pursue deals, especially as a way to add to its stores of spectrum, without resorting to full-on mergers. Analysts and deal specialists say one potential seller is Clearwire, which already helps provides a high-speed data network to Sprint.

Another is Dish Network, which has an abundance of spectrum but has been unable to set up its own mobile phone network. The company’s chairman, Charles W. Ergen, hinted at an industry conference that with T-Mobile out of the running as a potential partner, he would be open to others.

“Sometimes when one door closes, a window opens somewhere else,” he said, according to a report in The Denver Post.

Analysts have floated one more, bolder, possibility: buying the newly enlarged T-Mobile, creating a third major company to combat Verizon and AT&T. Industry bankers disagree on whether such a deal would be opposed by the Federal Communications Commission.

Brian X. Chen contributed reporting.