Three Reasons Why Sprint Nextel Corporation (S) Needs SoftBank

3. Capital

Money doesn’t buy happiness, but it can save a company. The sheer amount of capital that SoftBank has at its disposal will be a boon to the New Sprint.

The deal is structured like this: $12.1 billion to Sprint Nextel Corporation (NYSE:S) shareholders for a 70% share, and an additional $8 billion to be invested in Sprint itself. That kind of capital will be more than just a shot in the arm for the struggling Sprint.

Where will the capital be used? Let’s start with market penetration.

In the early 2000’s, SoftBank broke up the monopoly in telecommunications in Japan by undercutting the competition with low prices. SoftBank was able to do this because of the abundance of capital already accumulated in other established segments of its business. Over the past five years, Sprint has had difficulty competing price-wise with its counterparts in the U.S. with greater resources. Not anymore. With the capital infusion by SoftBank, Sprint can immediately become more competitive both in the U.S. and abroad.

Bottom line

The takeover simply makes too much sense for Sprint Nextel Corporation (NYSE:S) to pass up. Sometimes, a struggling company needs a capital infusion to give it new life.

Assuming the deal goes through, I think that Sprint is an excellent buy. At just over $7, Sprint’s stock has increased 185% in the last year. The trend will continue at a faster rate as SoftBank’s capital and expertise go to work.

Sprint is going nowhere and needs something big. Something to turn the company around. SoftBank will do just that.

The article 3 Reasons Why Sprint Needs SoftBank originally appeared on Fool.com and is written by Marie Palumbo.

Marie Palumbo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Marie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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