[TOKYO] The acquisition of Sprint Corp was supposed to help Masayoshi Son realize his vision of transforming SoftBank Group Corp into the world's most-valuable company.
Instead, the 2013 deal has become his biggest setback so far, dragging down SoftBank shares and cutting into the billionaire's wealth.
SoftBank tumbled yesterday to its lowest level since the Sprint deal closed 2 1/2 years ago. Mr Son's fortune has shrunk by US$3.2 billion over the past 12 months, according to the Bloomberg Billionaires Index, as the Japanese company's stock plunged.
The Sprint deal has proven a dramatic blow for Mr Son, one of Japan's most enigmatic entrepreneurs who has said he has a 300-year plan for SoftBank and wants to build an Internet empire unrivaled in "profit, cash flow and market value."
Instead, as Sprint losses mounted, Mr Son found himself spending hours a night on the phone with its engineers and executives. The prospects of a turnaround may be slipping away, taking away precious time from the 58-year-old as he tries to secure his legacy.
"He was very overconfident from SoftBank's success in Japan," said Amir Anvarzadeh, a manager of Japanese equity sales at BGC Partners Inc in Singapore.
"With Sprint, it seems like Son's luck with these big, splashy acquisitions has run out."
SoftBank paid US$22 billion for a controlling stake in the No. 3 US wireless operator at the time. That investment has lost US$7.3 billion in value, according to SoftBank, and Sprint is now the No. 4 carrier. Hiroe Kotera, a spokeswoman for SoftBank, declined to comment.
At the press conference announcing the Sprint deal in October 2013, Mr Son reminisced about his first trip to the US as a 16-year-old. The experience inspired him to create SoftBank, which he since transformed from a distributor of PC software to one of Japan's largest acquirers, with more than 1,000 investments.
"Today, more than 30 years later, I once again make a major advance into America," Son said at the time.
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He then tried to acquire T-Mobile US Inc to combine with Sprint, but regulators blocked him, scuttling his plans to achieve profitability in the US market.
Sprint subsequently got US$1.2 billion in financing from a phone leasing company created by SoftBank to help lower equipment costs and relieve pressure on its cash supply.
"The scenario has gone completely awry," said Yasuaki Kogure, chief investment officer at SBI Asset Management Co. "It's becoming clear to investors just how high the hurdle is now."
Sprint closed down 10 per cent on Friday after a report said the company was finalizing plans to cut US$1 billion in network costs through measures analysts called risky. Sprint is working to move radio equipment to spots on lower-cost, government-owned properties, according to a report in Re/code.
SoftBank fell as much as 1.5 per cent to 5,034 yen in Tokyo today, after tumbling 7.9 per cent yesterday.
During the next three years, Sprint must address six bonds coming due with an aggregate principal amount of US$7.6 billion. These issues account for 28 per cent of all communications bonds set to mature by year-end 2018, Bloomberg Intelligence analyst Stephen Flynn wrote in a note Friday.
The cost to insure the company's debt from default climbed to the highest since November 2012 on Monday, according to CMA data. SoftBank is the fourth-riskiest company on the Markit iTraxx Japan credit-default swap index, after Sharp Corp, its own unit Ymobile Corp and Toshiba Corp.
Sprint Chief Executive Officer Marcelo Claure plans to cut US$2.5 billion from the company's more than US$20 billion in annual costs. Sprint booked its fifth consecutive quarter of losses, and SoftBank may record a charge of as much as US$1.2 billion, the company said in November.
"Son has promised a rapid recovery," said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo. "As it failed to materialise, investors began to lose hope." The strategy of trading losses for subscribe gains has taken a toll on Sprint's market value. At the same time, a slowdown in China brought down shares of Alibaba Group Holding Ltd, SoftBank's biggest holding, by 22 per cent last year.
SoftBank is still investing aggressively in startups. Nikesh Arora, the president Son hired from Google, is leading the effort and plans to put about US$3 billion into companies each year. The goal is to back startups that can become the next Alibaba, the Chinese e-commerce company that pulled off the largest initial public offering ever.
"There will always be fans of SoftBank, it's just at this moment in time, no one cares -it's out of fashion," said Andrew Clarke, director of trading at Mirabaud Asia Ltd in Hong Kong. "They have too many concerns about Sprint and Alibaba because those shares are being crushed."