NEW YORK ( TheStreet) -- Softbank's $20.1 billion deal to acquire a 70% stake in Sprint-Nextel (S) will boost the No. 3 U.S. telecom provider's ability to compete with AT&T (T - Get Report) and Verizon (VZ - Get Report).
Sprint last week confirmed that talks were under way about a possible "substantial" investment from the Japanese firm.
The Overland Park, Kan.-based firm is keen to participate in industry consolidation, enabling the company to better challenge its larger rivals AT&T and Verizon.
Sprint, which is heavily indebted, will use the Softbank deal to drive its Network Vision strategy forward. Network Vision aims to consolidate multiple network technologies into one network, with the goal of "increasing efficiency and enhancing network coverage, call quality and data speeds."A huge injection of capital from Softbank will thus bolster Sprint's arsenal in the U.S. telecom battle. The Sprint acquisition is the largest ever foreign acquisition by a Japanese company. "Partnering with a well-capitalized company likely to benefit Sprint," wrote Thomas Seitz, an analyst at Jefferies, in a note released on Monday. "We believe combining with a larger partner, one which carries a low level of leverage (Net Debt to 2013 EBITDA of 0.9x), will provide Sprint with capital that the company needs to better compete with its larger rivals -- AT&T and Verizon." In a statement released early on Monday, Sprint CEO Dan Hesse described the deal as a "transformative transaction" for the company that creates immediate value for Sprint stockholders. "Our management team is excited to work with SoftBank to learn from their successful deployment of LTE in Japan as we build out our advanced LTE network, improve the customer experience and continue the turnaround of our operations," he added. Investors responded positively to the news, pushing Sprint's shares up 2.44% to $5.87 in premarket trading. Softbank will buy $8 billion of shares directly from Sprint and then another $12.1 billion of shares in the open market, according to the joint statement released by the companies. The merger has already been approved by both companies' boards, but still needs approval from Sprint shareholders and U.S. regulators. The deal is expected to be completed by the middle of 2013.