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) and Verizon ( VZ). 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.
Other analysts have also highlighted the broader impact of Sprint's deal with Softbank. "We believe Softbank's investment will spark further consolidation, likely starting with Sprint's acquisition of Clearwire ( CLWR)," wrote Jonathan Chaplin, an analyst at Credit Suisse, in a note released on Monday. "New capital from Softbank will enable Sprint to accelerate consolidation of the industry." Chaplin, who sees the deal as a positive for Sprint and other carriers, has an outperform rating on Sprint. "
The cash infusion gives Sprint the ability to look at Clearwire," added Mike McCormack, an analyst at Nomura Equity Research, in a note. "With an $8bn cash infusion, treating the convertible bond as equity, Sprint would immediately see its leverage level fall from 3.6x 2013 EBITDA to 2.1x, removing any doubt of the company's ability to fund the business and compete aggressively." McCormack also noted that the deal allows Sprint to purchase the $1.6 billion un-owned Clearwire equity stake and refinance Clearwire's $4.2 billion of gross debt. Sprint is Clearwire's largest shareholder, with a 48.1% stake in the Bellevue, Wash.-based company. Shares of LTE specialist Clearwire rose 12.07% to $2.60 in premarket trading on Monday. AT&T shares dipped 0.03% to $35.62 before market open on Monday. Verizon shares crept up 0.18% to $44.7. --Written by James Rogers in New York. Follow @jamesjrogers >To submit a news tip, send an email to: firstname.lastname@example.org.