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Japan’s SoftBank hops on the overseas M&A bandwagon

Even Masayoshi Son is getting out of Japan. The technology entrepreneur's $40-billion (U.S.) Softbank is in talks to take control of $17.7-billion Sprint Nextel. Combining the third-largest cellphone carriers in the United States and Japan holds little obvious industrial logic. It looks like another case of Japanese M&A adventurism fuelled by cheap money and docile shareholders.

In the Land of the Rising Sun, Mr. Son is a rare shining light as an investor. SoftBank acquired Vodafone Japan before the advent of the iPhone ushered in the age of mobile computing. The risky-seeming bet proved prescient. Shares of Softbank, which also owns 40 per cent of Yahoo Japan, have surged more than eightfold in the past decade, while the Nikkei 225 index has gone nowhere.

But buying Sprint is a head-scratcher. The U.S. carrier is squeezed by the juggernauts of AT&T and Verizon, which control two-thirds of the mobile market. The urge to merge at home had Sprint considering a counterbid for MetroPCS Communications, which agreed a merger deal with America's No. 4 carrier, Deutsche Telekom's T-Mobile USA, just last week.

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True, there could be some benefits for Softbank in owning Sprint. It might have greater purchasing power with Apple when acquiring iPhones, or with equipment suppliers as the two operators update their networks. Yet this is analogous to the faulty logic that drove many of Vodafone's own disappointing deals a decade ago.

And because Japan has been in the vanguard of the switch to mobile telephony, SoftBank may have some bright ideas about running Sprint. It may also be that Mr. Son sees value where others do not in Sprint's ownership of Clearwire, whose WiMax technology is widely viewed as the Betamax of cellphone networks.

Such synergies, however, would be unlikely to be worth as much as, say, the $3-billion premium SoftBank would need to pay for a 67-per-cent stake in Sprint at a 30-per-cent pop to Wednesday's closing price.

Like other members of Japan Inc. – including advertising agency Dentsu, which in July agreed to buy U.K. media buyer Aegis – SoftBank can exploit a near-zero cost of capital, a strong currency and a wish to diversify away from a home market with a shrinking population. That, rather than industrial or investment logic, may explain Mr. Son's sudden interest in Sprint.

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