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May 28, 2017

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Shares of Japan's Softbank soar on Sprint takeover

TOKYO -- Japanese mobile carrier Softbank soared in Tokyo on Tuesday as investors piled back into the stock, which had been pounded since news of its US$20 billion takeover of Sprint Nextel emerged last week.

Softbank shares jumped 9.5 percent to 2,485 yen (US$31.49) in heavy trading on the Tokyo Stock Exchange, after losing more than 20 percent of their value in the previous two sessions.

The cross-ocean marriage — the biggest overseas acquisition by a Japanese firm — will see Softbank acquire 70 percent of Sprint Nextel, the number three U.S. carrier behind AT&T and Verizon Wireless, by the middle of next year.

Investors had dumped the shares on concerns about funding and the broader strategy behind Softbank's monster deal.

However, Tuesday's rally was likely driven by bargain hunters looking to pick up Softbank's embattled shares on the cheap rather than investors falling in love with the deal, traders said.

Hirokazu Fujiki, strategist at Okasan Securities in Tokyo, said the market reaction on Tuesday was partly due to a "sense of relief" among investors, but added that questions still hung over the deal.

"There was a sense of relief after some of the uncertainties surrounding the deal were erased at the news conference," he told AFP.

"But the future course of Softbank shares is still uncertain."

Chief executive Masayoshi Son, Japan's second-richest man, acknowledged on Monday that his firm was jumping into the cutthroat U.S. mobile market where it has no foothold or experience, and taking over a heavily indebted firm that lost US$2.89 billion last year.

"This will be a big challenge — when you take on a big challenge, it comes with big risks," Son told a news conference in Tokyo on Monday.

Some analysts noted there was little overlap between the two carriers and few areas to cut duplication costs in the combined firm, which will have about 90 million subscribers.

Moody's and Standard & Poor's both put Softbank's credit rating under review for a possible downgrade the past few days, saying the takeover would heap pressure on an already debt-heavy balance sheet.

On Tuesday, S&P warned that if the transaction is completed under its current terms it would "expect" to cut Softbank's rating to junk status.

Sprint Chief Executive Dan Hesse, who will continue to run the U.S. business, said the deal gives Sprint more liquidity to compete with giants AT&T and Verizon.

The agreement also catapults Softbank, little known outside Japan, to third spot globally among cellular firms after China Mobile and Verizon, based on mobile telecom service revenue.

The tie-up suggests a potential for new maneuvers in the U.S. market just days after Deutsche Telekom's U.S. affiliate T-Mobile USA unveiled a plan for a merger with smaller carrier MetroPCS.

"This has the potential to transform the Softbank Group into a behemoth straddling Japan, the U.S., and Asia," Credit Suisse analyst Hitoshi Hayakawa told Dow Jones Newswires.

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