Japan’s biggest foreign acquisition

A Sprint out of Japan

Masayoshi Son is a maverick but his motivation to buy Sprint is familiar

Oct 20th 2012 | TOKYO | from the print edition

THERE is little that is typically Japanese about Softbank’s $20.1 billion takeover of Sprint Nextel, America’s third-largest mobile carrier. In fact, there is little that is typically Japanese about its architect, Softbank’s founder, Masayoshi Son, either. He is a billionaire entrepreneur, not a ladder-climbing company boss or salaryman. He is making corporate Japan’s largest-ever foreign acquisition, which he admits is a big gamble. He is financing it through Softbank’s own cash and debt, rather than hitting up shareholders. And he can explain his rationale for buying Sprint with few notes and with (albeit self-flattering) jokes.

But whereas the 55-year-old son of Korean-born parents remains an iconoclast in Japan, the pickle that he is in is familiar enough. Japan Inc has notched up a record amount (in dollar terms) of purchases abroad this year, partly because of a dawning realisation that population shrinkage may permanently reduce the size of its domestic market. When announcing the Sprint deal on October 15th, Mr Son pointed out that demographic factors alone might make not buying Sprint more risky than buying it.

Does that make it a good deal, though? It involves Softbank, Japan’s third-largest mobile carrier, taking 70% of Sprint for ¥957 billion ($12.1 billion), and injecting a further $8 billion of new capital to strengthen the company, which struggled for years after acquiring Nextel in 2005.

The main aim is to shore up Sprint’s balance-sheet so it can take part in the consolidation of the lower ranks of the American mobile-phone market, where the fourth and fifth carriers, T-Mobile USA and MetroPCS, are merging. Regulators would be happy to see stronger competitors to Verizon Wireless and AT&T, the dominant duo. Mr Son and Dan Hesse, Sprint’s chief executive, left little doubt they had unspecified acquisitions in mind.

Another aim is to strengthen Sprint’s hand in the race for spectrum, as America belatedly upgrades to superfast 4G networks. A big Softbank investment could enable Sprint to buy out Clearwire, of which it already owns 48%. That would give it greater access to a wireless technology known as TDD LTE, which Softbank also uses. Clearwire’s shares soared on reports that Sprint is in talks to take a bigger stake in it.

Mr Son is confident he has the money and the magic touch to help Sprint achieve those goals. His expertise, he says, came from buying the troubled Japanese mobile operations of Vodafone in 2006, which involved taking on a whopping $38 billion in debt when Softbank was a minnow. Since then its profits and profile have soared, and the debt was paid off seven years early. Sprint’s total debt, though more than $50 billion, is not as onerous given both companies’ prodigious cashflows. Mr Son also says Softbank can find synergies with Sprint by doing joint deals to knock down the price of smartphones.

The trouble is, other synergies are hard to find, and some think it was mainly ego that drove Mr Son to offer such a high price to enter a country in which he has no experience. (Endearingly, he doesn’t blanch at such fears, declaring: “I’m a man, and every man wants to be number one.”)

Stephen Givens, a Tokyo-based M&A consultant, says Mr Son is overpaying for a company with a weak position in a duopolistic market, mistakenly focusing on acquiring mobile networks whose value can quickly disappear. He believes Mr Son’s main success came from the “luck” of snaffling Apple’s iPhone ahead of Japan’s own former duopoly, NTT DoCoMo and KDDI. “This is a huge thing to bite off,” he says. Others note that, whereas six years ago foreign banks lent Softbank the money to buy out Vodafone in Japan, this time Japan’s deal-starved megabanks provided all the debt, possibly after undertaking too little analysis of the risks.

The access to cheap finance (and a strong yen) may be Mr Son’s secret weapons, however. His mobile business generates lots of cash. By buying Sprint as it is improving its performance, he is in effect doing a leveraged buy-out in an industry he knows well, with low borrowing rates. Whether or not he transforms the American mobile market, he may still be able to make money.

from the print edition | Business

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A Sprint out of Japan

Oct 25th 2012, 16:36

After 2010’s 311 east-Japanese earthquake, Japan’s stagnant-inclined economy faces South Korean competition and European debt. Therefore, the prosperity of business empire declines while many enterprises adjust the strategic aspect of finance and product line.

Sony changed boss, ended the previous comparative plan in TV panel with Samsung last year and Sharp last May while expanding the territory into medicine concerned with sophisticated Olympus. The similar is Sharp, whose new boss Takashi Okuda sell the stake to Foxconn (Hon-Hai) of Guo Tai-min (Terry Guo). Since Terry Guo forced Sharp to renounce some interest last August while share price was lower than 200 yen, many factory’s “Kanban” (trademark) turn to Foxconn - making Hon Hai become LCD’s giant bigger than Quanta, besides Chimei several years ago, in manufacturer aspect. In the near future, Hon-Hai possibly swallow more part of Sharp, including appliance concerned, as Terry Guo and Dai Tseng-Wu told me.

Traditionally, Japan’s finance and manufacturers were stable after Japan’s brand boomed in American street as the crisis of middle-east oil in 1970s. The elevation of Japan’s business, from management to makers and to sales, has Japanese rise to the rank of heaven. The rich’s investment can always be the index of the time’s economic situation, like Nintendo’s Yamaguchi Hiroshi in 2000s and the aftermath of Uniqlo’s Tadashi Yanai after 2009. After the emergence of European debt, Masayoshi got the second place of Japanese rich.

As an economical way of business when it comes to deal, weak yen helps excite the output while the strong yen can be used to buy the stake or share of company. On one hand, Tokyo and Beijing opened the direct yuan-yen transaction in this June (set at 12.33 yen to the yuan on Jun. 1). On Jul. 22, the dropping Euro traded briefly at 94.89 yen, the lowest for 11 years and 8 months.

On other hand, American economic growth recovered this spring. The debut of Android 4.0, i-Phone 5 and moreover the latest i-Pad mini, excites another tide of purchase as 4G network universally available. Continuing last year’s lawsuit about AT&T and T-mobile, American market of mobile phone has another pathway of progress. Several decades ago, Softbank and Sony have co-operatively developed the technique of communication long-term in 2G era, in addition to Korea’s Samsung, when Siemens and Nokia still absolutely headed the mobile phone. Japan’s present companies relative to communication mostly bet their innovative capability on the world’s market, especially in American.

“Had AT&T successfully bought out T-Mobile, I never threw any bid of paper (or note), even just USD. 1000 - because to do so means dual-poly perfectly form. Have the above become truth, and I haven’t to enter into American market.”, Son said.

Softbank spent about 20 bn dollars to buy a 70 % stake in Sprint. In an exclusive interview with NHK last Monday, Son said that both Softbank and Sprint sell iPhones and are moving to build a high-speed LTE wireless network. It’s said that The purchase will create a global telecommunications giant with more than 96 million subscribers. Sprint has 56 million subscribers in the United States, the third largest number behind AT&T and Verizon.

On Oct. 10, when the negotiations with Sprint were in the final stage, Son asked rhetorically over twitter whether his business goals werent too low, and whether he shouldnt be satisfied with an ordinary life, for he wants to encourage himself to achieve his goals despite his worries.

According to NHK World, in addition to Sprint, Softbank announced the purchase of eAccess, Japans 4th-largest mobile carrier, on Oct. 1 by increasing procurement of telecom equipment and taking advantage of economies of scale, as he tweeted.

No one exactly predicts no result. Neither did his deal. It must takes some time to have Softbank implement know-how on the arrangement and law about smartphone sales with network improvement and to apply cutting-edge technology in the US market. As the recent 7.9-inch i-Pad mini on sale, the following effect may arise the willingness of purchasing more mobile phone. Son thinks, in the 4G era, one person needs “2 or more than 2” phone numbers. He speaks “audacity” to advance himself and his business aloud.

Indeed, the market of mobile phone is hot. Lenovo turns the focus to android mobile phone owing to the previewed demand of Windows 8 while Google’s troop, led by the flag of “Nexus” - including Asus, Sony Nexus, Samsung Nexus II, LG Nexus 4 and HTC Nexus 5 - is still scheduled as usual. Although rumor has it that Japans sun fall, New York’s Sony Building, the symbol of postmodern architecture designed by Philip Johnson, tells the glorious impact on the world - how Renaissance detail and Chippendale-style pediment appeal so much. In 1984’s beginning, it belonged to AT&T until 2002. Now Sony intends to sell it, but I think Japanese may continue to hold the art.

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附帶一篇10月13日的華為和中興在美國開始投資受阻的事。

Huawei and ZTE

Put on hold

Two big Chinese telecoms firms come under fire in America

Oct 13th 2012 | SAN FRANCISCO | from the print edition

A NEW congressional report about Huawei and ZTE, two of China’s largest telecoms firms, appears to have been written for vegetarians. At least, there is not much meat in it. The study, which was published on October 8th by the Intelligence Committee of the US House of Representatives, declares the firms a threat to America’s national security. Yet it presents little hard evidence to support its recommendations.

These are draconian. The committee calls for the Chinese firms’ networking gear and any other kit containing their components to be excluded from all American government systems—and those of contractors working on them. It wants Huawei and ZTE barred from buying any American companies. And it urges all American telecoms firms purchasing networking equipment to shun them.

The report comes at a time of rising trade friction, thanks to the election. It also underlines how deals involving high-tech infrastructure are becoming politicised. Australia has already blocked Huawei from taking part in its country-wide broadband system on national-security grounds. Canada hinted this week that Huawei could be excluded from work on a new, secure government network.

The congressional study frets that Huawei’s and ZTE’s products could be used as Trojan horses by Chinese spooks. It makes much of the firms’ opaque governance and the fact that they have internal Communist Party committees, as big Chinese firms generally do. However, it provides no evidence that these have influenced the firms’ behaviour. It drops hints that it has evidence from current and former Huawei staff that some of its employees in America may have been involved in “potentially unethical or illegal behaviour”. But it fails to spell out what. The details are classified.

The committee’s investigators also cast doubts over Huawei’s efforts to build trust in its products elsewhere. In Britain, for instance, the firm has set up a centre where security-cleared staff, some of whom used to work for Britain’s signals-intelligence agency, vet the networking kit and software that the Chinese firm wishes to sell to telecoms companies there. BT, a British firms that buys Huawei equipment, says that having the firm as a supplier has not jeopardised the security of its networks.

Huawei and ZTE have proposed a similar approach in America, working with outfits such as Electronic Warfare Associates and other private firms that vet high-tech gear for the US government. But the report says it is not clear yet that such steps would work in America. Why not? It gives no convincing reason. Instead, it says that a telecoms supplier should offer “a convincing set of diverse evidence” that its system “is worthy of our trust”. Such as? The report does not disclose.

Huawei, which generates only tiny sales in America, is not happy. “I can’t work with ifs, buts and maybes,” complains John Suffolk, Huawei’s global cyber-security officer and a former chief information officer for the British government. Moreover, the report glosses over the fact that many telecoms-equipment makers, such as Sweden’s Ericsson, also source kit and components in China. “People might worry that Huawei equipment is having malware put into it, but one could have exactly the same concerns about Ericsson’s equipment too,” says Pierre Ferragu of Sanford C. Bernstein, a bank.

A better approach, as The Economisthas argued, would be for governments to be crystal clear about the standards that all telecoms-equipment suppliers must meet to win their business. Instead, America’s politicians appear to be indulging in techno-nationalism. “America likes to tell other governments not to meddle in technology and the internet, but here we are becoming more like China,” says Douglas Guthrie, the dean of George Washington University’s business school.

from the print edition | Business

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