NEW YORK — SoftBank Corp., in talks to buy a majority stake in Sprint Nextel Corp., is seeking to avoid the pitfalls that have soured investments in the U.S. telecommunications industry by the biggest phone companies.
Sprint said Thursday that it’s in talks to take a “substantial” investment from the Japanese carrier. SoftBank, Japan’s third-largest mobile-phone company, also plans to buy MetroPCS Communications Inc. through Sprint, the Nikkei newspaper reported. SoftBank stock plummeted today amid concern that turning around unprofitable Sprint will prove costly.
Foreign companies, including Deutsche Telekom, NTT DoCoMo and France Telecom, have struggled to profit from investments in the world’s largest economy – whether because they overpaid or lacked sufficient oversight of assets. Deutsche Telekom’s T-Mobile USA is worth one-fourth less than it was a decade ago, and NTT DoCoMo wrote down most of the value of its stake in the predecessor to AT&T Inc.’s wireless business. “The track record hasn’t been great,” said Christopher Watts, an analyst at Atlantic Equities in London. “The history is littered with examples of telcos that tried to enter the U.S.”
“Investors tend to worry more about the financial burdens initially when it comes to any major purchases, rather than hopes for growth,” said Takashi Oba, a senior strategist at Okasan Securities Co.
SoftBank’s considering the deal after Overland Park, Kan.-based Sprint lost two-thirds of its value since 2007, even after the rally that more than doubled the stock this year. Sprint, which closed at $5.73 Friday, has plunged 68 percent from five years ago. The decline underscores the difficulty Sprint has faced in competition with larger carriers Verizon Wireless and AT&T, and the urgency of its effort to attract outside investment.
“With Sprint, you are not paying a huge premium for the equity,” said Michael Mahoney, senior managing director at Falcon Point Capital in San Francisco. “Valuations are relatively low.”
Sprint stands to benefit from backing by SoftBank in a market that requires heavy investment in network upgrades and large subsidies to offset the price to consumers of expensive handsets such as Apple Inc.’s iPhone, said Avi Greengart, a research director at Current Analysis Inc. “This is a business that requires tremendous long-term investment,” Greengart said. “Sprint definitely seems like it’s on a positive trajectory. But they could use a financial backstop.”