SoftBank to increase Sprint stake as Vision Fund boosts earnings

“We are entering an era where billions of connected devices and sensors will come online throughout the US”

SoftBank has revealed plans to increase its stake in Sprint shortly after abandoning efforts to merge the US telco with local rival T-Mobile US, reports Light Reading (Banking Technology‘s sister company).

The announcement came as the Japanese company reported a sharp increase in operating profits for the April-to-September period thanks to investment activities by its $98 billion Vision Fund, which launched in November last year.

Operating income soared 35.1%, to nearly JPY 874.8 billion ($7.7 billion), compared with the year-earlier six-month period.

SoftBank says it would increase its stake in Sprint to an upper limit of 85%. Crossing that threshold could trigger a possible delisting of Sprint.

SoftBank was at the end of March this year reported to control about 83% of shares in Sprint, which operates the fourth-biggest mobile network in the US.

In a short statement on SoftBank’s website, CEO Masayoshi Son says: “We are entering an era where billions of connected devices and sensors will come online throughout the US. Continuing to own a world-class mobile network is central to our vision of ubiquitous connectivity. Sprint is a critical part of our plan to ensure that we can deliver our vision to American consumers and we are very confident in its future.”

Those remarks follow criticism that a merger with T-Mobile US ultimately fell apart because Son was unwilling to accept a minority stake in the business, ceding control of the new-look entity to Deutsche Telekom, T-Mobile’s German parent.

Sprint’s share price lost about 9% of its value on the New York Stock Exchange (NYSE) early last week when reports first surfaced that talks between SoftBank and Deutsche Telekom had collapsed. T-Mobile’s shares fell about 5%.

SoftBank’s results for the recent six-month period reveal mixed fortunes for the Japanese powerhouse, which continues to generate about three quarters of its revenues from telecom activities at home and in the US.

On a year-on-year basis, overall sales rose 3.3%, to about JPY 4.4 trillion yen ($38.5 billion), thanks to favourable currency movements and gains at the Yahoo Japan subsidiary and ARM, the UK semiconductor designer that SoftBank acquired in a $32 billion deal last year.

SoftBank did not start including figures from ARM in its own financials until early September 2016, explaining most of the year-on-year increase in sales for the recent six-month period.

In local currency terms, it reported a dip in telecom revenues in Japan and at Sprint, which nevertheless recorded a sharp improvement in profitability due to cost-cutting activities.

Despite SoftBank’s efforts to reinvigorate Sprint, the mobile operator has struggled against its three big rivals – AT&T, Verizon and T-Mobile – and had seen a tie-up with the Deutsche Telekom subsidiary as a means of challenging the market leaders.

The deal would have created an operator serving about 130 million customers and with more spectrum than any other US operator.

Following the collapse of talks with Deutsche Telekom, SoftBank is now reported to be in merger discussions with US cable giant Charter, which has long been seen as a rival suitor to T-Mobile. Charter is thought to be keen on playing a bigger role in the US mobile market and – like Deutsche Telekom – may have its eye on Sprint’s vast spectrum holdings, which could prove valuable as operators launch next-generation 5G services in the next couple of years.

SoftBank booked JPY 186.2 billion ($1.6 billion) in operating income from its Vision Fund, which was set up to support investments in technology companies across a range of sectors and involves a number of high-profile investors, including sovereign wealth funds in Saudi Arabia and the UAE as well as well as Apple, Qualcomm, Foxconn and Sharp.

While that delivered a major boost to overall operating profits, SoftBank reported a 82% drop in net income, to just JPY 143.7 billion ($1.3 billion), compared with the year-earlier six-month period.

It blamed the fall largely on derivative losses related to Alibaba, a Chinese ecommerce giant in which it owns a stake of about 28%.