UPDATE 10-Sprint in talks on potential sale to Japan's Softbank
* Could be largest Japanese acquisition in U.S. ever
* Nikkei says Softbank would also pursue MetroPCS
* Deal could lead to Sprint buying Clearwire - analysts
* Sprint, Clearwire soar in afternoon trade; MetroPCS down
By Taro Fuse and Sinead Carew
TOKYO/NEW YORK, Oct 11 (Reuters) - Japanese wireless service provider Softbank Corp is looking to buy roughly 70 percent of Sprint Nextel Corp in a bold move that would make it a major player in the U.S. mobile market.
But Softbank's ambitions may not stop with Sprint, which might also be looking to buy out its partner, Clearwire Corp . The Japanese company might also be aiming to use Sprint as a vehicle to make a run at smaller Sprint peer MetroPCS Communications Inc, a two-step transaction that would potentially cost more than 2 trillion yen ($25.55 billion), according to a Nikkei report.
That would make it the biggest overseas acquisition by a Japanese company ever and vault Softbank into the upper echelons of wireless carriers worldwide.
In response to reports of a pending deal, Sprint said on Thursday that it was in talks with Softbank on a "potential substantial investment" that could involve a change in control of the U.S. company. It said there was no assurance of a sale.
Softbank is eyeing a controlling stake in Sprint worth more than 1 trillion yen ($12.8 billion) and is in talks with several banks to borrow money to finance a bid, according to a source with direct knowledge of the matter.
A second source familiar with the situation, who would not speak on the matter publicly, said Softbank was after a stake of roughly 70 percent, which it could achieve by buying some newly issued shares directly from Sprint and tendering for the rest.
By raising some new equity directly, Sprint would be able to shore up its balance sheet and potentially fund other deals such as a buyout of Clearwire in which it already holds roughly 48 percent.
Sprint shares rose as much as 19 percent on Thursday to levels not seen since the summer of 2011, on the heaviest trading volume in the stock's history. The stock ultimately closed 14.3 percent higher at $5.76 on New York Stock Exchange.
The shares of Clearwire, which could play a key role in any deal, closed almost 71 percent higher at $2.22. Clearwire, which has been looking for new sources of funding, has said that it has enough money until at least the middle of 2013.
It declined to comment on Thursday and its chief financial officer pulled out of a conference presentation at the last minute without an explanation.
A major Sprint investor said any Softbank investment should be used to buy out the rest of Clearwire, to give Sprint attractive wireless spectrum assets and to speed up Clearwire's upgrade of its wireless network with faster data speeds.
"I just don't think there's any deal unless it involves Clearwire. I don't think you'd see one without the other," said Daniel Martino, a fund manager at T. Rowe Price, which owned 47.2 million Sprint shares as of the end of June.
Sprint, whose market capitalization was $15.12 billion at Wednesday's market close, is the third-largest U.S. carrier, with more than 56 million users at the end of June, even after losing customers for years.
As for Softbank, Sprint might be its only option for an entrance into the U.S. market, according to analysts.
"In terms of (Sprint) standalone, we believe the asset represents the only way for a potential new entrant to get a national presence immediately in the U.S.," Wells Fargo analyst Jennifer Fritzsche wrote in a note to clients.
The Softbank news comes just days after a source told Reuters that Sprint has been considering bidding for MetroPCS, which agreed this month to merge with Deutsche Telekom AG's T-Mobile USA.
MetroPCS shares fell sharply at the open, turned positive in but then fell again, ending down 3.3 percent at $11.64.
The atmosphere was calm at Sprint headquarters in Overland Park, Kansas on Thursday, all of the chatter aside.
"This will be interesting to see if it happens; if it has legs," said one longtime Sprint manager who did not want to be named. "There are always a bunch of rumours. Something like this is always a possibility when your stock price is so low."
A third source familiar with the situation, who declined to speak publicly about the matter, said Softbank has been exploring ways to get into the U.S. market since this summer, as it sees opportunities for growth here that would help offset a stagnating market in Japan.
Founded and led by Masayoshi Son - Japan's second-richest man, according to Forbes - Softbank has grown from a packaged software distributor 30 years ago into a broad telecommunications group worth more than $40 billion.
"He's the definition of patient capital," Martino of T. Rowe Price said.
But it faces tougher competition at home against the likes of KDDI Corp and NTT Docomo.
Japanese media said buying Sprint - which competes in the United States against Verizon Wireless and AT&T Inc - would also make it cheaper for Softbank to procure smartphones and other mobile devices.
Benjamin Powell, a former general counsel to the director of national intelligence now in private practice at WilmerHale, said the deal was very likely to require a government review because it involved sensitive telecommunications networks. But several analysts said regulators were likely to eventually look favourably on a deal.
Japanese companies made a record 642 cross-border deals last year, according to Thomson Reuters data. Buoyed by a stronger yen, the value of all overseas deals rose to $69.5 billion, up 81 percent from 2010, also a record.