Softbank Eyes Vodafone for Possible European Expansion

by Matt Klassen on April 11, 2014

Softbank is considering expansion into Europe should recalcitrant American antitrust regulators block the company’s proposed merger between itsUSsubsidiary Sprint and fellow wireless competitor T-Mobile, according to reports. In fact, Softbank may be creating a new rivalry with AT&T across the pond as sources indicate Softbank may be evaluating the possibility of acquiring UK carrier Vodafone.

Earlier this year AT&T made headlines after reports were leaked thatAmerica’s second largest wireless carrier was exploring expansion opportunities in Europe, with rumours that Vodafone may be Ma Bell’s intended target. But without formally stating its intentions AT&T was forced to put its interest on hold for six months, a window that now perhaps affords Softbank the opportunity to explore a Vodafone acquisition of its own.

But analysts remain skeptical that Softbank will be able to afford Vodafone, even as the Japanese telecom giant awaits a significant financial boost from its stake in Chinese internet giant Alibaba, meaning that much like AT&T, it just might not make financial sense to expand across the pond.

According to Forbes, Softbank stands to gain a significant liquidity boost with the planned IPO of Chinese internet giant Alibaba, a firm that Softbank holds a 37 percent stake in. The IPO is expected to be worth $150 to $250 billion, leaving Softbank with money to burn.

While analysts agree that it would be in Softbank’s best interests to continue to pursue a merger between its Sprint subsidiary and T-Mobile, given that merging networks on the same soil is infinitely cheaper due to reduced operational costs and infrastructure consolidation, its becoming clear that American regulators have little appetite for such a merger, meaning that if Softbank CEO Masayoshi Son can’t convince antitrust officials to change their minds, Softbank is going to need a Plan B.

This is where European expansion comes into play, as given the fact that Softbank doesn’t see a bright future for Sprint in the American market should its merger with T-Mobile be rejected, the company might look to use the proceeds with its Alibaba investment elsewhere. But the real question is could it afford Vodafone? The answer: Unlikely.

As the report from Forbes explains, “Between market capitalization, debt and a premium, an acquisition of Vodafone could cost Softbank $160 billion, considerably less than anything the Japanese venture could generate in an Alibaba IPO.”

But there exists a more interesting target for Softbank should regulators reject its T-Mobile merger proposal, and that’s the outright purchase of German telecom firm Deutsche Telekom. Not only would the price of DT be easier on Softbank’s pocket book, but it comes with the added bonus that DT’s own American subsidiary is T-Mobile itself. Why settle for the subsidiary when you can buy the whole operation, lock, stock and barrel.

In the end it’ll be interesting to see where these latest rumours take the American telecom market, as it’s becoming abundantly clear that with the dominance of Verizon and AT&T that smaller competitors are looking to consolidation, either at home or abroad, in order to find new avenues for expansion.

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Written by: Matt Klassen. Follow by: RSS, Twitter, Facebook, or YouTube.

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