TOKYO – Softbank Corp. President Masayoshi Son is betting $20 billion he can add value by buying control of Sprint Nextel Corp. in the biggest Japanese purchase of a foreign company. Theres 26 trillion yen ($330 billion) that says he cant.
Thats the net amount of market value lost within 12 months after deal announcements in the 10 biggest overseas purchases by Japanese companies from 2000 to a year ago. Eight of the companies saw market value erode while two posted gains.
The track record is terrible, said Stephen Givens, a Tokyo-based lawyer specializing in M&A and corporate governance.
The Sprint deal brings announced overseas acquisitions this year to $96 billion, exceeding the total for all of 2011, as the yen near a postwar high and a stagnating domestic economy make markets outside Japan more attractive. Acquisitions abroad have failed as buyers paid too much and lack management resources, both of which apply to the Sprint deal, Givens said.
Its not an easy path to go, Son told reporters Monday after the agreement to buy the Sprint stake. But without taking on a challenge, we may end up facing bigger risks.
Outside Japan, the biggest cross-border deals by individual companies have fared better. Globally, the 10 biggest overseas acquisitions announced from 2000 to a year ago added about $56 billion in market value in the 12 months after their announcement dates, with only two leading to declines, according to data compiled by Bloomberg. The number was calculated using todays exchange rates.
Son initiated the deal about two months ago when he traveled to Kansas City to meet with Dan Hesse, chief executive officer of Sprint, which was code-named Swan, one person with direct knowledge of the situation said. He was accompanied by Softbank Managing Partner Ronald Fisher and his lead M&A adviser, Jeff Sine of Raine Group. Hesse was joined by Sprints M&A head, Keith Cowan, said the person who declined to be identified because the details are private.
Son had bet on Hesse before. In 2000, the Japanese billionaire invested $100 million in Terabeam Networks Inc., a laser communications company Hesse was running. Terabeam aimed to create a network of light beams over U.S. cities to connect local and national networks at 1 gigabit per second.
Terabeam in December 2002 sent a letter to shareholders offering to buy back stock for 95 cents a share, about what the company estimated its liquidation value would be. Lucent Technologies Inc. had paid about $20 a share for its stake in 2000.
Hesse was open to Sons idea to invest in Sprint, said another person with direct knowledge of the situation.
To strengthen Sprints market position, Hesse had been close to buying Metro-PCS Communications in February and held talks with Deutsche Telekom about a tie-up with T-Mobile USA. Softbank had also considered entering the U.S. market by doing a deal with T-Mobile USA, one person said.
The two executives met again in Japan and company advisers continued talks by phone. By the time Deutsche Telekom announced on Oct. 3 its merger with MetroPCS, the Softbank-Sprint talks had already accelerated.
Sprint held a board meeting on Oct. 5 to discuss the terms of its deal with Softbank and other options, including the possibility of counterbidding for MetroPCS, said the people. The board held off on any MetroPCS bid and met again the next day to discuss the Softbank deal, which it approved last Sunday night.
The transaction will help Softbank enter the United States, where average revenue per data user jumped 14 percent last year, more than double Japans 6.3 percent pace, according to data compiled by Bloomberg.
The U.S. is a large and growing mobile market, with the highest smartphone penetration in the world and high revenue per user, yet it is hampered by relatively slow network speeds, said John Christiansen, a spokesman for Softbank.
The deal brings Son along a path once trod by bigger Japanese rival NTT DoCoMo Inc. The cellular provider bought AT&T Wireless Services Inc. as part of $10 billion in purchases of overseas carriers, only to take 1.5 trillion yen in writedowns on the investments between 2000 and 2004.
More recently, Nomura Holdings Inc.s 2008 takeover of Lehman Brothers Holdingss European and Asian units swelled costs that led to nine straight quarters of losses abroad.
The corporate culture of some Japanese companies has also contributed to challenges in running companies based overseas, said Parissa Haghirian, associate professor at Sophia University in Tokyo and author of Understanding Japanese Management Practices.
Most Japanese companies are basically like a village where managers grow up and never leave, so when they go overseas, there are cross-cultural issues, she said in a phone interview.
Softbank plunged by a record 17 percent in Tokyo trading on Oct. 12, the day after talks to buy Sprint were reported. The company is worth less now than before news broke of its talks for a 2006 purchase of Vodafone Groups Japanese unit, its biggest deal before Sprint.
Every overseas acquisition by a Japanese company has a negative impact on its stock price, Givens said. Ive never seen a cross-border acquisition that resulted in a bump for the stock price.
The Lehman shock that froze global credit markets also pushed the yen higher and boosted Japanese companies appetite for assets abroad that had declined in price.