The head of Japan's Softbank admitted the firm was taking a risk after it confirmed Monday it would pay $20 billion to take over US-based Sprint Nextel in Japan Inc's biggest overseas acquisition.
Softbank said the ambitious deal would see it acquire 70 percent of Sprint Nextel, the third-biggest US mobile firm behind AT&T and Verizon Wireless, by the middle of next year.
Chief executive Masayoshi Son, a well-known tech entrepreneur and Japan's second-richest man, acknowledged his firm was jumping into the US mobile market where it has no foothold or experience, and taking over a heavily indebted firm that lost $2.89 billion last year.
"This will be a big challenge -- when you take on a big challenge, it comes with big risks," he told a news conference in Tokyo on Monday. "However, maybe avoiding the challenge is a larger risk."
"A man must not settle for being number two -- you must aspire to be number one," he added.
The combined company will have about 90 million subscribers.
Son's comments underlined fears aired by analysts and investors over the cross-ocean marriage, which catapults Softbank to third spot globally among cellular firms after China Mobile and Verizon.
Softbank shares fell 5.30 percent to 2,268 yen in Tokyo trade ahead of the announcement Monday, after tumbling 17 percent Friday when it confirmed it was in talks with Sprint.
And on Monday Moody's put the firm under review for a possible downgrade, following a decision by fellow agency Standard & Poor's to put it on review Friday, saying it would heap pressure on an already debt-heavy balance sheet.
"While the transaction may benefit the combined companies as a result of lower capital expenditures and such items as the cost of handsets, we believe the addition of new debt is unlikely to offset the initial benefits of the transaction," Moody's said in a statement.
In 2006, Softbank bought the struggling Japanese arm of Vodafone for about 1.75 trillion yen ($22.2 billion at current exchange rates), while it has announced plans to buy smaller rival eAccess Ltd for $2.3 billion.
"This will be the largest investment by a Japanese firm in an American firm," Son told the Tokyo briefing.
"You might ask whether this will succeed. I am confident."
The deal -- which will see Softbank buy $12 billion worth of Sprint shares on the market and $8 billion in newly issued stock -- will be financed with cash and loans from Japan's major lenders and Deutsche Bank, the carrier said.
Sprint chief executive Dan Hesse, who will continue to run the US business, said the deal was a "transformative transaction", giving Sprint liquidity to remain competitive in a US field dominated by AT&T and Verizon Wireless.
"(It) creates immediate value for our stockholders, while providing an opportunity to participate in the future growth of a stronger, better capitalised Sprint going forward," he said in a statement.
Little known outside Japan, Softbank is perhaps the country's most colourful and dynamic among the major mobile carriers and was the first to carry Apple's popular iPhone.
Its well-known television commercials star a talking snow-white dog and have featured American actor Tommy Lee Jones.
Softbank reported a 313.8 billion yen ($3.98 billion) net profit on sales of 3.2 trillion yen in its fiscal year through March.
Japanese media have suggested that Softbank was separately eyeing fifth-ranked US carrier MetroPCS Communications.
The Sprint acquisition could trigger a clash with Deutsche Telekom, after its US affiliate T-Mobile USA unveiled a plan for a merger with MetroPCS in a deal that would boost the fourth-largest US wireless carrier's effort to compete in the US market.
Some analysts say the Softbank offer for Sprint could be part of a bid to acquire MetroPCS before the T-Mobile deal is consummated.
Japanese firms have embarked on a spending spree in recent years on the back of slowing domestic demand and a surging yen, which hit record highs against the dollar late last year and remains strong.
So far this year, Japan Inc. has spent about $66 billion overseas, putting it on track to surpass last year's record of $84 billion, according to data provider Dealogic.
In 2007, Japan Tobacco paid about $19 billion for Britain's Gallaher Group Plc in 2007, the biggest overseas deal by a Japanese firm at the time.