Dish’s purpose is to enter the wireless industry since it wishes to diversify from its core business of satellite television where it has been losing subscribers and facing competition. On the other, Softbank was extremely keen to enter the U.S. wireless market to increase competition.
Softbank has huge plans to give a solid financial and technical backing to Sprint to equip the Kansas carrier to contend its larger rivals. As per a statement made by Tokyo Stock Exchange, at the moment the Japanese carrier is trying to arrange a loan of approximately $20 billion to refinance the debt that it had taken to fund its stake for Sprint. Softbank would receive a loan of $3 billion from government affiliated financial institutions. Let’s delve a little deeper into the situation.
Softbank is said to be in talks with 19 banks to sign a loan agreement tomorrow. People familiar with the situation said that this would help the Japanese telecom provider to cut its borrowing costs. The company’s loan will be pooled from various lenders including Bank of Tokyo-Mitsubishi UFJ Ltd., Mizuho Bank Ltd. and Sumitomo Mitsui Banking Corp. Other financial institutions such as Development Bank of Japan, Deutsche Bank AG and Japan Bank for International Cooperation shall also contribute towards the loan.
Some industry observers wonder if Softbank’s decision to acquire Sprint was correct as it burdens the already debt heavy balance sheet of the Japanese company with further debt load. On this, Softbank’s President Masayoshi Son argues that banks are most willingly extending their support to refinance the company which reinforces Softbank’s growth potential and business acumen. Masayoshi is very confident that the company will post solid earnings this year. This would be primarily driven by addition of new subscribers during the year. Moreover Sprint’s deal would help the carrier save as much as $2 billion by sharing purchases of handsets and network equipment.
The amount raised from the refinancing agreement would be partially used to finance Sprint’s acquisition. The rest will be used to settle of maturing debt, and the remaining would be used to pay back some debt pertaining to eAccess Ltd which Softbank acquired in January.
Softbank has taken a bold step in acquiring Sprint on debt. The company has huge plans to boost the roll out of the 4G LTE Network Vision of Sprint so that it can effectively contest Verizon’s and AT&T’s tyranny. It would be interesting to see how things take shape in the US wireless world after the recent acquisition in the industry. Even T-Mobile (TMUS) is charged up after it joined forces with regional carrier MetroPCS. Both Verizon and AT&T are finally feeling the heat from smaller national carriers Sprint and T-Mobile. I believe Sprint’s acquisition by Softbank is a boon to the U.S. carrier as it is not only receiving financial backing from the deep pocketed telecom player, but also gaining from the telecom giant’s enormous expertise in the wireless arena.