Fearing leaks, Japan's Softbank sprinted to close U.S. deal

NEW YORK/TOKYO Wed Oct 17, 2012 8:00pm IST

A jogger runs past a Softbank shop in Tokyo October 16, 2012. REUTERS/Kim Kyung-Hoon

A jogger runs past a Softbank shop in Tokyo October 16, 2012.

Credit: Reuters/Kim Kyung-Hoon

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NEW YORK/TOKYO (Reuters) - After months of secretive talks between "Starburst" and "Saturn" - codenames for Japanese telecoms firm Softbank and its U.S. target Sprint - fears that media leaks could scuttle Japan's biggest overseas buyout pushed negotiators into overdrive.

"All the dealmakers were in New York in the last two weeks," said a U.S. source familiar with the talks, which climaxed with Monday's announcement that Softbank Corp would pay $20 billion for control of Sprint Nextel Corp, giving the Japanese firm's billionaire CEO Masayoshi Son entry into the U.S. market and Sprint, the No.3 U.S. carrier, much needed cash.

"You get to a point where you're close enough to getting a deal done and we were really worried about leaks in the press, so we wanted to have the status of the deal ahead of the status of the leaks," said the source, one of several in New York and Tokyo interviewed by Reuters for this article.

Son, founder and one-fifth owner of the Japanese carrier, took the first concrete step towards the mega-deal when he met Sprint CEO Dan Hesse on a trip to California in late June, though brokers seem to have been shopping the U.S. firm for longer. Japan's No.2 carrier KDDI Corp said on Wednesday it was approached a year or so ago about buying Sprint, but declined to take part in talks.

Son, a rare risk-taker in conservative corporate Japan, says he began pondering some new bold move about two years ago, when he feared he had become mired in a defensive mode.

"I had set a management target of becoming debt free ... so I had bound myself by trying not to look at beautiful, wonderful things, like trying not to look at beautiful women. As a result, I felt I had become too defensive," the 55-year-old entrepreneur told Japanese TV after announcing the Sprint deal.

"I began to think, is it OK to end my life in such a mediocre fashion?" said Son, whose previous gambles include propelling Softbank, founded three decades ago as a software distributor, into the mobile business with the acquisition of Vodafone's Japan unit for $15.5 billion in 2006.

PERSONAL CHEMISTRY

Son and Hesse - an AT&T veteran with a fondness for sporting metaphors who got to know Son years ago when the Softbank chief invested in his telecom start-up Terabeam - had a relationship of trust that smoothed the talks, sources said.

"Personally, there was a very positive chemistry between Masa and Dan," a source in Japan said, noting both are hands-on managers who also take the long view about their firms' future.

That chemistry was on display at Monday's joint news conference, where Son, who attended the University of California, Berkeley, and Hesse, who went to the University of Notre Dame, demonstrated a first-name familiarity.

"It's difficult for me not to call him 'Masa' as I've known him for so long," said Hesse, who towers over the much shorter Son. "It's the first time I've ever seen him in a tie."

Son also turned to Jeff Sine, co-founder of boutique merchant bank Raine Group and a long-standing associate, as key banker on the deal rather than bigger houses, reflecting a preference for working with those he knows and trusts. Sine was "very critical to the deal," said the source in Japan, as was Ron Fisher, managing partner of Softbank.

Hesse led the talks for his Sprint team, alongside Keith Cowan, the carrier's president of strategic planning, and Doug Lynn, vice president of corporate development.

Son - whose strategic plan for Softbank's next 30 years includes becoming one of the 10 biggest companies in the world, with a market value of more than $2.5 trillion - was the driving force behind the deal, the sources said.

"This is Son's deal," said a second U.S. source. "He's the dealmaker."

"NETWORKED"

Appropriately for a cross-border deal that aims to shake up a U.S. market dominated by Verizon Communications Inc and AT&T, much of the Sprint-Softbank talks were done over the phone and by email, at least until the final dash.

"This was the most 'networked deal' I've worked on," said the first U.S. source.

"We'd end each day with lengthy conference calls with people in Tokyo. We'd start each day catching up with 100 email messages and then we'd have conversations with a variety of people in the U.S., the Sprint people, largely in Kansas," the source added. "There were fewer in-person meetings in this deal than any other of this scale that I can think of."

Despite his interest in expanding beyond Japan's ageing, saturated market, Son may have had doubts about whether buying Sprint was the way to go, given the increased debt load.

"Of course, there was thorough debate and I wouldn't say there was no opposition to the deal," said a Japanese source familiar with Softbank's internal discussions. "But there were those in favor of the deal, some even more so than Son."

A sense of urgency grew in the final weeks as fears surfaced that Japanese media, which often track executives' travel schedules for clues to business deals, had sniffed out the talks.

"You guys had the leak pretty early on, which was pretty distressing to those of us working on the deal," said the second U.S. source. Japan's NHK public TV and the Nikkei business daily broke news late on Thursday that Softbank was eyeing a 70 percent stake in Sprint. The deal followed just days later.

End-game talks on the complex deal, which involved at least three steps with two entities and a debt conversion and had to cope with U.S. regulatory issues, coincided with other transactions taking place around the edges.

But negotiators barely missed a beat after Softbanks's October 1 announcement that it would buy smaller rival eAccess Ltd. Also, U.S. carrier MetroPCS Communications, a potential Sprint target, agreed to merge with T-Mobile USA, part of Deutsche Telekom AG.

"In the middle of all this, just as we were getting really close, he (Son) announced the eAccess deal in Japan," the second U.S. source said. "He was doing a $2 billion deal on the side while we were doing the $20 billion deal."

BIGGER GOAL

Son has often stated his goal of overtaking Japan market leader NTT Docomo, but people close to the Sprint deal say he's aiming even higher. "Softbank is very interested in competing head-on with AT&T and Verizon," the first U.S. source said. "That's the goal."

Credit rating agencies and many investors fear Son may be miscalculating with his latest gamble, given the increased debt burden for Softbank and concerns that Sprint will still struggle to woo customers from its two bigger rivals. Reflecting those concerns, Softbank shares slumped 24 percent after news of the deal leaked late last week. By end-Wednesday, the stock had rebounded, but was still 9 percent below last Thursday's close.

But Son's fans say he'd likely bounce back and move on to the next challenge, given that he doesn't share the fear of failure that often holds back Japanese executives.

An ethnic Korean born to an impoverished family, Son has built Softbank into a near-3 trillion yen ($38 billion) company, making himself Japan's second-richest man along the way.

"He's made some mistakes in the past but he just runs over them," said a Japanese high-tech industry veteran. "That makes him different from other people in Japan."

($1 = 78.9000 Japanese yen) (Additional reporting by Carey Gillam, Nicola Leske and Peter Lauria in New York and Nathan Layne, Emi Emoto, Reiji Murai and Maki Shiraki in Tokyo; Writing by Linda Sieg; Editing by Ian Geoghegan)

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