What SoftBank's takeover of Sprint means for you (FAQ)
Sprint has agreed to be purchased by Japanese wireless provider SoftBank. CNET takes you through the deal and how it may affect consumers.
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Japanese wireless provider SoftBank made a huge bet on the U.S. market after it agreed to take control of Sprint Nextel for $20.1 billion.
After days of speculation and reports, the two companies confirmed the deal this morning. SoftBank gets a large foothold in the U.S. market, which it believes still has the opportunity for growth. Sprint, meanwhile, gets a new lease on life and more support as it continues its turnaround.
But what does this mean for the average customer? Will the deal have any affect on Sprint's day-to-day service? CNET has put together this FAQ to answer your questions.
Okay, so what's going on again?
SoftBank, which provides wireless and wireline service in Japan and owns a number of mobile and Internet businesses, agreed to take a controlling stake in Sprint. Under the deal, SoftBank will pay shareholders $12.1 billion and will inject the company with $8 billion in cash for network upgrades and other improvements.
As a result of the deal, a new version of Sprint will be formed that will continue to be publicly traded. The deal is a bit complicated. The $12.1 billion that SoftBank is putting up will pay for 55 percent of Sprint's outstanding shares, valuing them at $7.30 per share. SoftBank's additional cash infusion, via a complex set of transactions, will convert the remaining 45 percent of Sprint stock into a 30 percent stake in the new company. SoftBank will own the rest.
Watch this: Inside Scoop: How will your Sprint plan change?
For investors, it's a decision between taking cash now at a 30 percent premium over the current trading price of $5.75, or banking on the combined company showing more growth than Sprint alone.
The new company will act as a standalone unit and will still be based in Overland Park, Kan., where Sprint is headquartered now. Sprint CEO Dan Hesse and his leadership team will remain onboard.
Who is SoftBank? Despite its name, SoftBank isn't a financial institution -- it's a Japanese provider of telecommunications and Internet services. In Japan, it's the third-largest mobile services provider, similar to Sprint's ranking in the U.S. But in Japan, it's an aggressive competitor and for several years made a name for itself as the exclusive provider of the iPhone. (Its larger rival KDDI finally got the iPhone last year when the iPhone 4S launched).
CEO Masayoshi Son said he likes to view SoftBank as a mobile Internet company with a different perspective than the typical telecommunications provider. The company claims to own stakes in 960 mobile Internet companies around the world, primarily in Asia.
Like Sprint, SoftBank has experiencing challenging larger rivals. Son said he has spent his career fighting duopolies, and will continue to do so as Sprint faces off against larger AT&T and Verizon Wireless.
Sprint's a big company, right? Why did it need this deal?
Sprint is indeed a large company, but it's also one under extreme financial duress. While the company boasted 56 million customers as of the end of the second quarter, it also lost $1.37 billion, and expects more losses coming for the third quarter.
The company is in the middle of a pricey multi-billion-dollar network upgrade program designed to make it more competitive with its rivals. At the same time, it has committed to a large number of iPhones from Apple, which has resulted in high costs every time iPhone sales spike. The quarters following the launch of the iPhone 5, for instance, are expected to be poor because Sprint has to pay a hefty subsidy for each device sold (the same issue faces all carriers that sell the iPhone). Piling on to the financial woes is a large amount of debt, some of which is expected to mature in the coming months.
In the wireless business, the bigger you are, the better off you are. That's why Verizon Wireless and AT&T spent years gobbling up smaller businesses, and why AT&T attempted (and failed) to buy T-Mobile USA last year. T-Mobile, meanwhile, has agreed to merge with MetroPCS, leaving Sprint without a natural dance partner in the U.S.
How will this affect my service? Is Sprint going away?
Over the next few months, Sprint's service will definitely remain unchanged. That's because the deal isn't expected to close until the middle of next year, and still requires regulatory approval. Until the deal closes, Sprint has to act as its own independent company.
There shouldn't be any dramatic changes even after the deal is completed, as SoftBank has indicated that it would want Sprint to continue executing on its plans to compete in the U.S. marketplace. Customers won't have to change phones or plans.
And no, Sprint won't be going away as a result of this deal. As previously mentioned, Sprint will continue to operate under its current management team.
Down the line, Sprint customers may actually start to see some perks from the deal.