SoftBank Corp., led by billionaire Masayoshi Son, had its credit rating cut to junk by Standard & Poor’s after winning approval from the Federal Communications Commission for its $21.6 billion bid to buy Sprint Nextel Corp.
The rating was cut to BB+, the highest non-investment grade, from BBB, with a stable outlook, S&P said in a statement today. The FCC announced July 5 that the deal is in the public’s interest, giving Son a position in the U.S. market.
Son, 55, wants to use the acquisition to help fulfill his ambition of making the Tokyo-based company the world’s biggest mobile phone operator. SoftBank won a bidding war for Sprint, the third-largest U.S. carrier, when it raised its takeover bid and Dish Network Corp. abandoned a competing proposal.
“Sprint Nextel’s exposure to intense competition in the U.S. market is unlikely to subside substantially in the next two to three years,” S&P said in the statement. Still, “we expect its operating performance to improve gradually, in part reflecting cost reductions and other merger benefits.”
SoftBank reported 1.2 trillion yen ($11.9 billion) in short-term borrowings as of March 31 and 1.7 trillion yen of long-term debt, according to data compiled by Bloomberg. Outstanding debt includes 130 billion yen of 1.24 percent bonds maturing on Sept. 17.
A lower credit rating indicates a higher risk of a default and can raise borrowing costs.
SoftBank shares fell 3.4 percent to 5,680 yen at the 3 p.m. close of trade in Tokyo, after the ratings cut.
Moody’s Investors Service and S&P put the Japanese carrier’s rating on review in October, saying a cut to below investment grade was possible. Japan Credit Rating Agency Ltd. has said it may lower its ranking to three steps above junk.
Overland Park, Kansas-based Sprint rejected Dish’s offer in favor of a sweetened SoftBank bid. SoftBank will pay $16.6 billion to Sprint shareholders and inject $5 billion of new capital into the target for a 78 percent stake, it said June 11.
SoftBank plans capital spending for Sprint of $8 billion this year and in 2014 before dropping to $6 billion annually for the four years after that.
Sprint separately bid for Clearwire Corp, a mobile broadband company it already majority owned, to gain access to valuable wireless airwaves. SoftBank needs the spectrum to roll out a fourth-generation network in the U.S. to challenge Verizon Wireless and AT&T Inc.
The FCC also approved Sprint’s offer to buy the half of wireless operator Clearwire it doesn’t already own.
Englewood, Colorado-based Dish, controlled by billionaire Charlie Ergen, abandoned its tender offer for Clearwire, conceding a bidding war with Sprint on June 26. Dish’s decision to move away from Clearwire came days after it scrapped its $25.5 billion tender offer for Sprint.
SoftBank, which has about 42 million subscribers with its units, is the fastest-growing mobile carrier in Japan. It ranks behind NTT DoCoMo Inc. and KDDI Corp. in Japanese sales.
Son is the 59th-richest person in the world with a net worth of $14.1 billion, according to the Bloomberg Billionaires Index. His fortune has increased by $5.2 billion this year.
SoftBank wants to replicate its domestic success with Sprint’s 55.2 million subscribers by improving networks and services, Son said. Annual savings at Sprint will be about $2 billion in the first four years from cost cutting, he said at SoftBank’s June 21 annual shareholder meeting.
SoftBank benefited from being the sole Japanese carrier to offer Apple Inc.’s iPhone from 2008 until last year, when KDDI started selling the handset. SoftBank added 3.53 million new subscribers in the year ended March 31, compared with 1.4 million for NTT DoCoMo, Japan’s biggest carrier, and 2.6 million at KDDI, the second-biggest, according to data provided by the companies.
Son forecast record operating income as acquisitions and new subscribers using iPhones stoke earnings. The company bought local competitor eAccess Ltd. to meet bandwidth demand for smartphones.
Operating profit, or sales minus the cost of goods sold and administrative expenses, for SoftBank’s domestic businesses probably will exceed 1 trillion yen in the year started April, up from 745 billion yen a year earlier, the company said April 30.
SoftBank, founded in 1981, has made almost 100 purchases since 2000, according to data compiled by Bloomberg. The company owns stakes in more than 1,000 Internet operations including Yahoo Japan Corp., Alibaba Group Holding Ltd. and Ustream Inc.