Friday, October 19, 2012

Discussion Topic 10/19/2012
Softbank just decided to buy Sprint. Is it a good move for both parties? Will this transaction change the industry dramatically?


  1. Mengyao Kong:
    Since hundreds years ago, AT&T is the top mobile carrier in US and it was broken down but nobody could really impact the number one position of AT&T.
    With the clear business strategy, which want to provide the best service and the most stable wireless signal, AT&T did a lot better than its competitors. Verizon actually provide the same service and have the same strategy, best quality and higher monthly fee. However, T-mobile, another wireless carrier has the lowest rate plan for Smartphone with anything unlimited only for $49.99, but the problem is they don’t have iPhone. AT&T and Verizon both have the contract iPhone service, which if you have to pay around $80 monthly fee but you could get iPhone for only $199, compare with retail price $649. Sprint has the same contract iPhone plan but with a lower monthly $fee 69.99. However, the Sprint 4G cover network is in a small proportion especially compared with AT&T and Verizon. I really don’t think it would be a great idea for AT&T to cooperate with Verizon to fight with Sprint because it seemed Verizon is the biggest competitor for AT&T and I believe everyone still remember the ad Verizon and AT&T did last year.
    Back to Sprint and Softbank, I don’t quite understand why Softbank wants to take over Sprint. I don’t think Sprint has some special technology Softbank doesn’t have especially considering Sprint just starts its LTE network test. There is only one thing I guess Softbank wants to do, entering the American market.
    However, the stock price dropped because of this potential deal, which the merge is not appraised by most of the investors. I think Amine might know more about this.

  2. Amine Bensaid:
    My argument is very similar to Ford's in the sense that this cross-continent acquisition could shake things up in the U.S. mobile phone market. I think that this acquisition is beneficial for both Softbank and Spring for the following reasons:

    1) Softbank will have access to Sprint's consumer base
    2) Softbank will now have an important exposure one of the major consumer countries in the world
    3) Sprint will have access to Softbank's: technologies, trade secrets, know hows, and more importantly to mobile devices such as the Iphone
    4) Sprint might now actually have a a strong competitive presence (considering that the acquisition will be successful)

    To answer Ford's question concerning Softbank's stock performance after the acquisition news. Softbank's stock indeed feel 17% on the first day and another 5.3% on the next trading day (source WSJ). The reason for that is mostly technical and fundamental rather than psychological. For example lets say that company A wants to buy company B, in most cases the acquisition is done through the secondary market meaning that company A will buy an X amount of shares of company B in order to take control of it. During this process Company A will have to pay a premium on company B stocks in order to make the deal attractive for company B. So following this logic lets consider that both companies actual stock price is $100, company A would have pay $120 to company B and thus the stock price of company B would increase by 20%. So to answer Ford's question, in order for company A to make the purchase it would have to sell enough treasury shares to raise the necessary capital to make the purchase. When this happens, the markets tend to react negatively when a corporation sells a lot if its own shares in the secondary market.

    This is one of the reasons why the acquiring company stock price tends to decline in the short term after an acquisition. In the long term, the stock price usually goes back to normal levels, especially if the deal is successful.

  3. Pian Li:
    The deal will be a win-win situation.It is a typical example of globalization and a game to seize market share.
    Industry overview:
    In wireless telecommunication industry in US, the competition is really intense. Its globalization is low and the trend is quite steady. Though some of the companies like Verizon are joint ventures with a British company, the industry’s major income is generated nationally. Thus, the industry has potential in globalization.
    Barriers to entry
    Regulatory conditions and spectrum availability are two major barriers to entry in this industry. Regulations do not allow too many competitors in the market. Only limited number of competitors in the market is allowed to use spectrum license. Thus, if an oversea company wants to enter US industry, it will suffer a high cost of entry barriers.
    In the wireless telecommunication industry in US, sprint ranks no.3 after Verizon and AT&T. Meanwhile, Sprint’s revenue does not grow fast. Thus, it may need external help to inject capital.
    Market Share
    Verizon 36.60%
    AT&T 28.40%
    Sprint 13.40%
    Revenues Change(%)
    Verizon AT&T Sprint
    2007 15.3 13.7 -1.1
    2008 12.3 14.8 -11.4
    2009 22.4 9.4 -9.2
    2010 5.1 10.2 0.2
    2011 10.6 6 5.8
    Source: IBISWORLD
    From the view of Softbank, it is one of the biggest telecommunication companies in Japan. According to its acquisition plan, the acquisition will make Softbank rank No.3 among its global competitors and the largest one between the US and Japan competitors. Also, Softbank will leverage its expertise in smartphones and mobile networks. This will definitely help itself compete with the US incumbents and enhance Sprint by utilizing Softbank’s technologies and resources. Meanwhile, if Sprint wants survive, it not only needs capital but also technology, both of which Softbank will provide.

  4. gsalpert:
    This is definitely an interesting move. It follows the trend of more consolidation and expansion of established western companies into the Asian market, the fastest-growing region in the world. Telecom has been a growth industry in Asia as more and more people have access to cell phones and signal towers, and this acquisition is really going to push Sprint into this arena. It will be interesting to see if Sprint expands, how it deals with its competition in Asia, especially in the case where telecom companies have very close relationships with the governments of their home countries.

    There has been talk of consolidation in the global telecom arena, and I think that this is beginning to happen across many industries. We just saw a recent attempt at a mega-merger between BAE Systems and EADS (a major european defense consortium). Basically, this would have created another company with the size and scale of Boeing. I expect this consolidation to continue as long as the American and European economies continue to be threatened, and companies have decided that they are better off pooling their resources together and creating efficiencies across a large scale within the new entity than expending extra resources to compete with each other.

  5. Xiao Zhong:
    The merger will surely cause great jolt in the industry by increasing the competition among the Big Three-AT&T, Verizon and Sprint. Softbank is indeed using its deep pockets to shake the wireless status quo in the US.

    Nowadays with M&A tidal wave all over the world, companies are paying more attention to long-term development through M&A, which is the so-called Strategic M&A. We all know that in a linear Cournot market, two firms would never have an incentive to merge because of the lack of “long-term”. And I think the merger of Softbank and Sprint is just a good example of long-term based strategic merger.

    I also think that the transaction poses great opportunity for both parties. First, the cross-border merger provides Softbank with access to greater US market. If alternative modes of market entry are sufficiently costly, a merger may indeed be profitable. Second, using Softbank’s strong capital base, Sprint would be able to pay off the debts accumulated in its buying Clearwire’s(a wholesale wireless broadbank provider) stake and to improve its heavily-complained wireless coverage. What’s more, Softbank may get access to Sprint’s critical resources such as Clearwire to get full control in the vast resources of spectrum. Just to list a few foreseeable benefits from the merger here.

    Regarding Softbank’s stock price, actually its shares rose near 10% in Tokyo on Tuesday after a huge plunge of nearly 20% following its announcement of merger with Sprint. Just as Amine mentioned, in the long-term Softbank can safely enjoy an increasing stock price.

    More interestingly, AT&T revealed that it is still considering merging with T-Mobile, though it failed to do so in the first attempt. I think the very reason that the AT&T-T-mobile merger was denied by regulator while the Softbank-Sprint case going rather smoothly is because AT&T acquiring T-Mobile would eliminate competition in the United States wireless market. While the Sprint-Softbank deal will grow competition.

  6. Kalyan Kanakamedala:
    As Pian, Glenn, and Xiao have mentioned -- pending regulatory approval ( -- Softbank stands to leverage its capital reserves to improve Sprint's bottom line and generate a significant return on its investment. Sprint CEO Dan Hesse noted, "We will no longer need to forgo investment opportunities, we have the flexibility that we just never had before" ( Softbank President Masayoshi Son may also believe that his company can lend its technological acumen -- particularly its knowledge of LTE network development and deployment ( -- and industry experience in addition to its money to help Sprint compete with AT&T and Verizon. Conversely, it may be possible that such economies of scale are not possible in the global telecom market; it will be interesting to see how this unfolds. The final component I would like to comment on is the relative strength of the Japanese yuan which facilitates such a merger. The U.S. benefits by inviting foreign investment, but I wonder what it loses in the process?

  7. jasonaqua:
    The intentions of two companies are clear. Softbank wants to enter US market and be a part of LTE revolution. Sprint needs the capital and cash to compete with two largest carriers in US – AT&T and Verizon. It’s a definitely a good move for both parties.
    For Softbank:
    1. Enter US market. 70% instead the full take over allow Sprint continue to be a US company. As US is the leading market in telecommunication; it’s a chance that Softbank won’t give up. If not Sprint, it will be other company in US.
    2. Customers base of Sprint.

    For Sprint
    1. Softbank was originally a venture capital company that invested on IT companies. They have experience to turnaround a company. They now have majority shares in over 300 IT companies.
    2. For the major shareholders of Sprint, they all get pretty big profit if they accept the deal. Common shareholders will get 36% premium over Sprint’s average trading price in the past 20 days. (Source :
    3. They can get 8 billion from Softbank for fixed assets.

    36% premium is a large premium right? Can anyone who know the industry tell more about whether the $7.3 per share is too low or too high?

  8. Tian Tan:
    Agree with the opinion that this transaction is beneficial to both parties.
    1. Wireless data service industry is promising in next 10 to 20 years. More than half internet data will be downloaded through cellphones.
    2. The market is far from mature, and the short-run price is attractive. Since entry barrier is very high, companies in this industry will earn enormous economic profit for a long time.
    3. Sprint get capital to invest in building LTE network, and Softbank get US market entrance and consumer base they need to operate business in north America.

    I am wondering how sprint can get consumer from AT&T, Verizon and T-mobile. They need time to catch up with the network system, and they need to come up with attractive data plan. For the price premium, I think it's fair enough for a 36% control premium. I think sprint's stock price will increase soon after the transaction.