Merger Setback Could Crimp SoftBank -- WSJ

By Mayumi Negishi 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 18, 2019).

TOKYO -- Possible delays to Sprint Corp.'s planned merger with T-Mobile US Inc. threaten Sprint parent SoftBank Group Corp.'s ambition to invest in the world's most valuable startups.

The merger between Sprint and T-Mobile, announced last year, would lower SoftBank's large debt by taking taking tens of billions of dollars in Sprint debt off SoftBank's balance sheet. That would expand Tokyo-based SoftBank's financing options to fuel an investment machine that already manages a $100 billion investment fund and holds a big stake in Uber Technologies Inc.

Shares in the Japanese technology investor slipped 1.5% in Tokyo trading Wednesday, retreating from a 19-year high the previous day, after The Wall Street Journal reported that Sprint and T-Mobile's merger had been challenged by Justice Department staff lawyers, who expressed concerns that the all-stock deal would threaten competition.

Reservations voiced by Justice Department staff lawyers aren't necessarily the last word on a merger, as department leadership also will have an opportunity to weigh in and make the final decision.

T-Mobile Chief Executive John Legere tweeted that the premise of the Journal's story was "simply untrue." Sprint Executive Chairman Marcelo Claure, who also is SoftBank's chief operating officer, said in a tweet that he couldn't comment beyond saying that discussions with U.S. regulators were continuing. A spokesman for SoftBank in Tokyo declined to comment, referring questions to Sprint.

SoftBank owns 87% of Sprint and has been weighed down by its U.S. subsidiary's troubles. Sprint and T-Mobile have said they hope to close the deal before July.

In a filing with the Federal Communications Commission on Monday, Sprint said it suffered from a "huge debt load" of $40 billion and cited an analyst's report saying Sprint "could restructure their balance sheet through a Chapter 11 process" in U.S. bankruptcy court.

In a note to investors, New Street Research analyst Pierre Ferragu estimated that Sprint would need a $20 billion capital injection if the merger doesn't go through.

SoftBank's long-term debt was slightly more than Yen17 trillion ($151 billion) as of Dec. 31, compared with about a third of that amount in cash and cash equivalents. To help fund its investment spree, the company in December listed its Japanese mobile unit and raised about $23 billion. That prompted credit-rating firm S&P Global Ratings to revise SoftBank's outlook to stable from negative, while retaining the company's junk, or speculative-grade, rating.

SoftBank also has flexed its fundraising prowess in Japan, where most savers get zero interest on bank deposits. Hungry for yield, retail investors this week rushed to sign up for the company's latest bond offering, in which it seeks to raise Yen500 billion ($4.5 billion) at a coupon of 1.64%.

A delay in the Sprint deal could complicate further fundraising and prompt credit-rating firms to take another look at SoftBank's prospects.

The SoftBank group's finances have been supported by the cash flow from its Japanese mobile-phone carrier, one of the three major operators in the country. But that business could be at risk from Japanese online supermarket operator Rakuten Inc., which plans to challenge mobile carriers with low-cost services targeting the same subscribers as SoftBank.

Write to Mayumi Negishi at [e-mail]

(END) Dow Jones Newswires

April 18, 2019 02:47 ET (06:47 GMT)

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