SoftBank looks to Buffett and Malone for $10bn Sprint investment

James Pearce
Published on:

Reports claim SoftBank CEO Masayoshi Son has met with billionaires Warren Buffett and John Malone over selling them a stake in US mobile operator Sprint

SoftBank is eyeing outside investors for its ailing US mobile operation Sprint, with Warren Buffett and Liberty’s John Malone both being linked to a potential deal.

According to the Wall Street Journal, SoftBank CEO and Sprint chairman Masayoshi Son met both Buffett and Malone in separate meetings last week during an annual gathering of top CEOs in Idaho, discussing a potential investment in the telco.

The report cited people familiar with the matter who said negotiations for a deal that could be worth around $10 billion are still at an “early stage”. A $10 billion investment would give Liberty or Buffett’s Berkshire Hathaway a stake of around 23% if done with common equity on current prices, BTIG Research said.

Son has been looking at various options for Sprint, including a potential merger with Deutsche Telekom’s US operation T-Mobile. Both Son and Deutsche chief Tim Hoettges have said they would look at potential deals for their respective US mobile operators, and an agreement was close just two years ago.

It is unclear what impact any potential investment in Sprint would have on the rumoured tie-up with T-Mobile. One issue it would help solve is the high level of debt a merged company would face – Sprint is reportedly carrying around $41 million in gross debt, which could stifle 5G investment plans.

However, plenty of other hurdles remain, according to Craig Moffett of MoffettNathanson research, including gaining approval from regulators for a merger.

“Unless an equity infusion in Sprint can be done at well below the current market, diluting current equity holders, Warren Buffett and John Malone would effectively be underwriting all of the risk that the merger would be rejected (and the synergies therefore lost),” Moffett wrote. 

“So where does all this leave us? Well, we’re still not close to being ready to say a deal is impossible. But no one should be confused about whether it would be hard. Simultaneously solving the three-headed monster of relative valuation, total valuation and leverage, in a world where merger approval is highly uncertain, is a triple bank shot.”

Overall, the investment could be as high as $20 billion, or 37% of the company, said BTIG’s Walter Piecyk, who questioned why Son would look to solicit cash when he already has access to material capital.

“Perhaps the cost cutting and lack of capital investment has taken a toll on Sprint’s ability to grow,” he added. “Despite all the gains management claims to have made in the network combined with promotional offers that offer new customers one year of free service, Sprint is likely to add a fraction of the post-paid voice customers that we expect T-Mobile to add this quarter, continuing a two year trend. These factors are not likely lost on Deutsche Telekom, which has to consider the true Cash EBITDA of Sprint as part of any merger negotiation.

“If Malone and Buffett were to take a third of Sprint, it would be hard to see how Masa could maintain control of Sprint post merger.”