April 30, 2018 / 4:52 AM / 3 months ago

Breakingviews - Sprint sale sharpens SoftBank's vision

HONG KONG (Reuters Breakingviews) - Selling Sprint puts SoftBank’s vision into sharper focus. The U.S. wireless carrier agreed to be the junior partner in a deal with larger rival T-Mobile US in an all-stock deal valuing Sprint at $59 billion, including debt. That represents a U-turn for the Japanese parent company’s boss, Masayoshi Son, but one which fixes his thorniest problem.

SoftBank Corp. Chief Executive Masayoshi Son speaks as the logo of their U.S. unit Sprint is backgroud in Tokyo May 11, 2015. SoftBank Corp's profit last year beat its own forecast and edged ahead of analysts' estimates but the Japanese telecoms conglomerate skipped issuing a forecast for the current year, showing it was still cautious about its U.S. unit Sprint. REUTERS/Issei Kato

A combination of the third- and fourth-largest American operators has been Son’s wish since he bought Sprint in 2013. Washington’s tone has changed enough – from a clear unwillingness to consolidate the industry any further to a more relaxed approach to regulation – to give it another shot. Other tricky matters remained, though. Talks broke down in November, in part because SoftBank didn’t want to cede control. Now, assuming trustbusters and other authorities agree, Son would swap Sprint for about 27 percent of the enlarged group, and share in some hefty financial benefits.

That recognises a few realities. First, T-Mobile US has outperformed. Its market value has roughly tripled since the Sprint deal completed, while the latter’s has barely moved. That made it harder for SoftBank to retain the upper hand; probably made T-Mobile US backer Deutsche Telekom less eager to sell; and bolstered the case for keeping T-Mobile US boss John Legere in charge.

Son therefore may have seen good reason to echo what Uber, the ride-hailing giant he backs, has done in tough markets like China: beat a strategic retreat and hang onto a minority stake. SoftBank can still expect cash payouts from the enlarged U.S. company and helpful insights into smartphone usage. Meanwhile, Son can focus on technology deals, such as Uber-like services for dog-walking and truck driving, with the nearly $100 billion amassed in the Vision Fund and a sister investment arm.

The Sprint transaction also spruces up SoftBank’s finances. Deconsolidating the U.S. company would lop 31 percent off SoftBank’s 11.5 trillion yen ($105 billion) of net debt, but less than a fifth of operating income for the financial year to March 2017. Overall, this could reduce a whopping 33 percent market discount on SoftBank, deduced by the average price targets set by analysts. Without Sprint, investors might see SoftBank more clearly.

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