SoftBank Set Up for More Deals After T-Mobile: Real M&A

Big 5

Billionaire Masayoshi Son, Japan’s most acquisitive executive, is raising a war chest that could be used to buy companies from Yahoo (YHOO)! Inc. to Dish Network Corp. (DISH)

Son’s SoftBank Corp. (9984) is selling almost $4 billion in bonds to help finance future investment even after the company scrapped a merger of its Sprint Corp. with T-Mobile US Inc. (TMUS) Targets could include an Internet, music or entertainment company that would help bolster Son’s global technology empire and possibly increase Sprint’s appeal to consumers by widening their choice of content to download.

Yahoo would fit that category, said Atlantis Investment Research Corp. Taking a stake in messaging service Line Corp. is another option for the Tokyo-based mobile-phone operator, according to Thornburg Investment Management Inc. Already the biggest shareholder in Alibaba Group Holding Ltd., SoftBank could team up with the e-commerce company, or buy a movie maker or news service, said SMBC Nikko Securities Inc. Abelian Research said the $85 billion company may even consider tucking Dish into its fold to better compete with the likes of AT&T Inc.

“Japan is not big enough for Son,” said Edwin Merner, president of Atlantis Investment Research in Tokyo. “He’s looking at the world.”

Son, 57, said Aug. 20 he is thinking about his next move after dropping a pursuit of T-Mobile, a $24 billion company. A spokeswoman for SoftBank declined to comment on any specific takeover targets. Representatives for Sunnyvale, California-based Yahoo and Englewood, Colorado-based Dish declined to comment. A representative for Alibaba in the U.S. declined to comment. A Tokyo-based spokeswoman for Line didn’t immediately return a call seeking comment.

Dealmaking History

SoftBank, where Son is chairman and chief executive officer, has struck $51 billion of acquisitions in the past five years, according to data compiled by Bloomberg. That’s almost double the amount spent by Japan’s next-biggest buyer, Nippon Steel & Sumitomo Metal Corp.

With the T-Mobile deal off the table, SoftBank said this week it’s selling 400 billion yen ($3.9 billion) of bonds to repay debt and finance future investment. The proceeds haven’t been earmarked for a specific deal, the company said. SoftBank had about $19 billion in cash and equivalents at the end of June, Bloomberg data show.

The breadth of Web portal Yahoo’s services, which span blogging, mobile Internet, e-mail, technology and beauty, helps rank the $37 billion company among SoftBank’s potential targets, said Merner. SoftBank is also the largest shareholder in Yahoo Japan Corp. (4689)

Deal Options

Softbank could structure an asset swap with Yahoo to gain the U.S. company’s stakes in Yahoo Japan and Alibaba without paying a big tax bill, said Di Zhou, an analyst at Santa Fe, New Mexico-based Thornburg Investment, which oversees about $89 billion including SoftBank shares. An all-stock purchase of Yahoo and a spinoff of the less desirable assets, such as the U.S. operations, is another possibility, she said.

Zhou said SoftBank could also consider taking a stake in Line, Naver Corp.’s mobile-messaging service, which people familiar with the matter said filed confidentially for a U.S. public offering. SoftBank could link the Japanese messaging company’s platform with Sprint phones, as well as Yahoo Japan e-commerce, and mobile games from GungHo Online Entertainment Inc. (3765) and Supercell Oy, the developers in which it owns stakes, Zhou said.

Changing Company

“SoftBank is always saying that they’re not just a wireless operator, they’re a mobile Internet company,” she said by phone. “That’s why you’ve seen them consistently investing or incubating a lot of Internet companies within the SoftBank venture. They’re trying to build out this mobile Internet and content ecosystem to keep their subscribers more sticky.”

Son, now Japan’s second-richest man, founded SoftBank in 1981. He turned the software wholesaler into a national mobile-phone operator and amassed investments in more than 1,300 businesses, including a stake in Chinese Web portal Alibaba that may be worth $64 billion. Alibaba is planning an initial public offering for next month, people familiar with the matter said last week.

“An alliance with Alibaba is possible,” Satoru Kikuchi, an analyst at SMBC Nikko Securities in Tokyo, said by phone. “There are a lot of choices for SoftBank, such as entertainment and media agencies.”

Shares of Yahoo rallied 0.7 percent to $37.91 at 12:29 p.m. New York time today. Dish fell 1 percent to $64.68.

Music Interest

Owning a music service helps mobile-phone operators squeeze more money from customers, said Eva Hunyadi, research analyst at Juniper Research Ltd., based in Basingstoke, England.

“Even if it increases the phone subscription by a few dollars per month, that would probably be a cost that consumers would be willing to pay,” Hunyadi said by phone.

It’s an industry SoftBank has recently considered. Last year, the company offered $8.5 billion for Vivendi SA’s Universal Music Group, though the approach ended in a rebuff, according to people with knowledge of the proposal. A deal would have handed Son the world’s biggest record company, home to artists including Lady Gaga and Taylor Swift.

Dish, the second-largest U.S. satellite-TV provider, may offer Son a way to satisfy his desire for a greater share of the U.S. telecommunications market, said Charles Golvin, founder of wireless research firm Abelian Research. In addition to tapping Dish’s stockpile of wireless spectrum, SoftBank could use an acquisition of the pay-TV provider to develop a home broadband platform that would compete with products from Verizon Communications Inc. and AT&T, he said.

Big Thinker

“In stark contrast to the T-Mobile deal, it has many of the results and potential customer benefits that the regulators are looking for in new telecom tie-ups,” Golvin said.

For now, Sprint CEO Marcelo Claure is plowing ahead with cheaper services, without the help of T-Mobile or any other proposed acquisition. Son, who is also chairman of Sprint, brought Claure on board this month. In the meantime, Son is unlikely to stop pursuing deals, said Merner at Atlantis Investment Research.

“He thinks big,” he said. “He is going to try for another one.”