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Sprint-SoftBank Deal Finally Cleared

Zacks Equity Research

Sprint Nextel Corp. (S) has cleared its final round of approvals for the acquisition by Japanese telecom company, SoftBank Corp. The U.S. Federal Communications Commission (:FCC) has approved the Sprint-SoftBank deal with majority votes, leading to successful accomplishment of the proposed merger. Last month, the deal received favorable support from the shareholders with 98% votes.

In addition, FCC also approved Sprint’s proposed acquisition of the remaining stakes in Clearwire Corporation (CLWR), which it currently does not hold. At present, Sprint holds 50.8% of Clearwire stakes. By acquiring the remaining shares for nearly $14 billion (inclusive of enterprise value), the company will not only achieve full complete control over Clearwire but will also gain access to its 2.5 GHz spectrum portfolio, hence allowing Sprint to solve its spectrum crisis.

With respect of the Sprint-SoftBank merger, we believe it could change the dynamics of the wireless industry, which is dominated by two carriers – Verzion Communications inc. (VZ) and AT&T Inc.  (T). Apart from making the market more competitive, the deal would significantly improve Sprint’s liquidity and facilitate key expansion plans that would strengthen its position. With the potential influx of capital, the company is hopeful that the Softbank deal would also aid the acquisition of Clearwire.

The SoftBank deal will support Sprint’s multi-billion dollar restructuring program known as Network Vision. Through this plan, the company is concentrating on the core Sprint platform, which includes CDMA, WiMAX and Long-Term Evolution technologies, and the eventual termination of the Nextel platform (iDEN business). Though the company has enough liquidity to address the growing costs of network upgrade, iPhone subsidies, debt maturities and working capital requirements, it needs to bolster its liquidity position buyouts. The transaction would provide Sprint the financial support to build and improve its competitive wireless network.

Sprint has a Zacks Rank #3, implying a short-term (1–3 months) Hold rating.

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