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The $20.1 billion Softbank / Sprint Nextel deal: Here’s what you need to know

Japan’s Softbank announced in Tokyo a deal to acquire for $20.1 billion an up to 70% stake in Sprint Nextel, the #3 wireless carrier in the US. Here are some key takeaways:

The deal will give Sprint an $8 billion cash pile to better compete with much bigger US rivals Verizon Wireless and AT&T.

It’s also a bold bid by Softbank to break out of the relatively saturated Japanese market. “Not taking this challenge will be a bigger risk,” said Chairman and CEO Masayoshi Son at the Tokyo press conference.

It follows the merger announced earlier this month between T-Mobile USA and MetroPCS Communications, together the #4 operator in the US and potentially in a better position together to challenge Sprint.

Expect more US telecom consolidation in the wake of the agreement. At a minimum, Sprint is expected to try to take control of Clearwire, another wireless operator, in which Sprint already holds a stake. But plays for other US carriers and spectrum are possible as well. Sprint had earlier explored deals with MetroPCS and T-Mobile USA.

Softbank, which is the #3 wireless operator in Japan, is at least partly guided by a quest for wireless spectrum in the US. That’s a key requirement for offering advanced mobile services in the future, and together Softbank and Sprint could have more clout in dealing with phone and equipment makers. Softbank said in its announcement that the two companies will rank third among global operators based on telecom services revenue.

Softbank investors are wary of the deal. Softbank shares fell 17% on Oct. 12 after the company acknowledged talks with Sprint, and fell a further 5.3% in Tokyo trading Oct. 15. Investors are concerned about what a Sprint purchase could mean for Softbank’s debt and profitability.

Softbank’s press release describes the somewhat complicated transaction here (pdf.)

Now read on: why Softbank’s bid for Sprint could allow them together to build the fastest mobile-phone network ever seen.

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