The three-way merger involving Softbank, Sprint Nextel Corporation (NYSE:S) and Clearwire Corporation (NASDAQ:CLWR) has finally been completed. The third largest U.S. carrier is now under the control of the Japanese telecom player, which owns a 78% stake in the carrier through its $21.6 billion cash-and-stock takeover. Softbank finally managed to clear all hurdles including its months of battle with satellite TV provider DISH Network Corp (NASDAQ:DISH), which also had its eyes on Sprint and made a counter offer of $25.5 billion.
The turnaround plan – ‘network is a core focus’
As per the deal, Sprint Nextel Corporation (NYSE:S) shareholders shall receive $16.6 billion in cash. The company’s balance sheet would get a boost of $5 billion instead of $8 billion, as Softbank had to revise the deal to sweeten shareholder’s cash component by compromising on the capital infusion for Sprint Nextel Corporation (NYSE:S). The Japanese carrier had to raise its bid for Sprint Nextel Corporation (NYSE:S) to beat DISH Network Corp (NASDAQ:DISH)’s competing proposal.
Sprint Nextel Corporation (NYSE:S) has used the cash infusion to finance its Clearwire Corporation (NASDAQ:CLWR) acquisition. It shall put in the rest to roll out its Network Vision. The Kansas carrier has taken decent steps in minimizing the cost inefficiencies which came from running different networks jointly. The Clearwire acquisition has brought Sprint Nextel Corporation (NYSE:S)’s subscriber base up to 64.3 million, which is still way behind AT&T Inc. (NYSE:T), which has a 107.3 million customer base, and Verizon Communications Inc. (NYSE:VZ), which leads with 116.8 million subscribers. T MOBILE US INC (NYSE:TMUS) continues to hold the fourth position with 43 million subscribers post its MetroPCS acquisition.
Softbank’s primary focus is to build Sprint’s network and boost its speed. The immediate need is to expand the coverage of Sprint’s wireless network using the recently acquired Clearwire airwaves. Softbank plans a capital expenditure of $8 billion in the current year, which shall go down to $6 billion a year for the next four years. The telecom provider estimates that cost cutting measures would help in saving as much as $2 billion in the coming four years and $3 billion a year subsequently.
Softbank doesn’t want to shift its focus on the management set up. Sprint’s Chief Executive Dan Hesse shall continue to lead the company holding the same position. Masayoshi Son shall serve as the Chairman of the newly formed joint entity.
The Clearwire acquisition is the key to Sprint’s bigger plan. The spectrum rich Bellevue carrier will help Softbank build a fantastic 4G LTE network to threaten the dominance of Verizon and AT&T. Dish had made a competing bid for Clearwire as well, but ended its bidding battle with Sprint days after its $25.5 billion deal fell through.
Clearwire is the key to Sprint’s success
Sprint ultimately almost had to double its acquisition offer to $5 a share to buy the remaining share in the regional carrier and fend off Dish’s rival proposal. The reason why the carrier went to that aggressive level bidding for Clearwire is because of its massive spectrum holding which would give Sprint the flexibility to build a robust network. Clearwire owns 160 MHz of airwaves in the most prime 100 markets in the U.S. This would facilitate Sprint in strengthening its network in these top markets.
