SoftBank could gain $3.5 bln by walking away from Sprint

TOKYO, April 16 Mon Apr 15, 2013 11:49pm EDT

TOKYO, April 16 (Reuters) - Masayoshi Son, billionaire founder of Japanese mobile carrier SoftBank Corp, is expected to stay in the battle for U.S. wireless service provider Sprint Nextel Corp - even though he could walk away with more than $3.5 billion in gains from currency hedging, a convertible bond and break-up fee.

Son, a rare risk-taker in Japan's conservative corporate culture, is likely to put his ambition to create a global company, with a $20.1 billion investment in Sprint giving SoftBank a toehold in the United States, ahead of quick financial gains, analysts said on Tuesday.

Dish Network Corp, the No. 2 U.S. satellite TV provider, on Monday offered to buy Sprint for $25.5 billion in cash and stock, trumping SoftBank's proposal last October to buy 70 percent of Sprint in the biggest Japanese overseas acquisition. The offer by Dish, which wants to combine its satellite service with Sprint's wireless network in an attack on telecoms powerhouses Verizon Wireless and AT&T Inc, represents a 13 percent premium to Softbank's bid.

"The issue for Son is that he wants to build a global company, he promised to do that. This is probably the one shot he has of doing that and I don't think he's going to walk away," said Neil Juggins, Hong Kong-based regional telecoms analyst at JI Asia, an affiliate of Societe Generale.

A Tokyo-based analyst, who declined to be named, also said Son was unlikely to back off and would probably raise his offer to seal the Sprint deal. "Son isn't going to give up that easily. I expect him to come back with a higher offer," the analyst said.

SoftBank has yet to respond publicly to the Dish move on Sprint, but a spokesperson told IFR, a Thomson Reuters company, that it will go ahead with a dual tranche bond issue in dollars and euros that is worth $2 billion. That bond issue is to help fund its Sprint deal.

CURRENCY HEDGING, CONVERTIBLE BOND

Announcing the Sprint investment last year, SoftBank said it hedged its acquisition with a forward exchange rate of 82.2 yen to the U.S. dollar, saving some 200 billion yen ($2.04 billion) in the process. The yen has since weakened 24 percent against the dollar as a result of an aggressive monetary policy by Japan's central bank to lift the country out of deflation.

In addition, SoftBank stands to make around a $1 billion gain from a $3.1 billion convertible bond it purchased from Sprint last year at $5.25 per share. SoftBank can convert the bond as soon as it abandons a Sprint deal. Sprint shares last traded at $7.06 after jumping as much as 17.8 percent on Monday to a near 4-1/2-year high.

On top of all that, SoftBank would also be paid a $600 million break-up fee if Dish walks away with Sprint.

"Short-term, yes, there are benefits that they would gain if they walked away, but I think SoftBank shareholders would mark them down quite heavily," said Juggins.

SoftBank shares fell 8.9 percent to a 2-week low of 4,270 yen in Tokyo on Tuesday - set for their biggest one-day drop in 6 months, since it announced its Sprint investment. That drop wipes around $5 billion off its market value.

In January, SoftBank reported a 12.6 percent increase in April-December operating profit to more than 600 billion yen ($6.1 billion).

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