* Deal would give Softbank cheaper access to smartphones
* Deal could be at 27 percent premium - analyst
* Sprint, Clearwire soar in early trade, MetroPCS sinks
(Recasts lead paragraph, adds background on Softbank, Sprint)
By Taro Fuse and Sinead Carew
TOKYO/NEW YORK, Oct 11 (Reuters) - Japanese mobile carrier Softbank Corp and U.S. operator Sprint Nextel Corp
are in talks about a deal that could see Softbank assume control of Sprint.
A deal would give Softbank a much-desired toehold in America and help Sprint fund costly upgrades to its network and compete against larger rivals.
In response to reports of a pending deal, Sprint said on Thursday that it was in talks with Softbank on a "potential substantial investment" that could involve a change in control of the company. It said there was no assurance of a sale.
Softbank is eyeing a controlling stake in Sprint worth more than 1 trillion yen ($12.8 billion), according to a source with direct knowledge of the matter, adding that the Japanese company is in talks with several banks to borrow money to finance a bid.
Sprint shares rose 19 percent to levels not seen since the summer of 2011, on the heaviest volume in the stock's history. Its bonds also jumped, and the coast of protecting that debt against default plunged, as investors priced in the prospect that a backer could pull the debt up to investment grade.
"The addition of Softbank would provide a deep-pocketed partner - removing any financing risk and meaningfully reducing (Sprint's) ongoing cost of capital," Evercore analyst Jonathan Schildkraut said.
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Sprint, whose market capitalization was $15.12 billion at Wednesday's market close, is the third-largest U.S. carrier, with more than 56 million users at the end of June. It is in the middle of a costly network upgrade that has led it to consider a range of partnerships.
One analyst said Sprint might be the Japanese company's only option if it has eyes on the American market.
"In terms of (Sprint) standalone, we believe the asset represents the only way for a potential new entrant to get a national presence immediately in the U.S.," Wells Fargo analyst Jennifer Fritzsche wrote in a note to clients.
WATCHING AND WAITING
The reports notwithstanding, the atmosphere was calm at Sprint headquarters in Overland Park, Kansas on Thursday.
Sprint has been a key employer in the state's wealthiest county, as evidenced by the upscale shopping center across the street from its offices. But Sprint veterans kept their emotions in check, particularly given all the speculation of late about whether the company might be a buyer or a seller.
"This will be interesting to see if it happens, if it has legs," said one longtime Sprint manager who did not want to be named. "There are always a bunch of rumors. Something like this is always a possibility when your stock price is so low."
Sprint may also be attractive as it has a majority interest in wireless data company Clearwire Corp , which owns attractive spectrum, Wells Fargo's Fritzsche said. Schildkraut said Softbank and Clearwire are both in the process of upgrading their networks to the same standard, which might add synergies.
Clearwire shares rose 37 percent in morning trading to $1.78, their highest in a month.
Meanwhile, Sprint has been considering whether to make a bid for smaller rival MetroPCS Communications , which this month agreed to merge with Deutsche Telekom's T-Mobile USA, a source told Reuters this week.
It was unclear what effect, if any, a Softbank deal might have on Sprint's potential pursuit of MetroPCS, whose shares fell 4.9 percent to $11.45 in morning trading.
A second source familiar with the situation, who declined to speak publicly about the matter, said Softbank has been exploring ways to get into the U.S. market since this summer, as it sees opportunities for growth here to offset a stagnating market in Japan.
Kevin Roe at Roe Equity Research estimated that Softbank could be offering about $6.40 per Sprint Nextel share, a 27 percent premium to Wednesday's close.
Founded and led by Masayoshi Son - Japan's second-richest man, according to Forbes - the company has grown from a packaged software distributor 30 years ago into a broad telecoms group worth more than $40 billion.
But it faces tougher competition at home against the likes of KDDI Corp and NTT Docomo .
As it chases market share, Softbank said this month it would buy smaller mobile service operator eAccess Ltd in a $1.84 billion deal. It said the buy would give it a total of 39 million users, just ahead of KDDI's 36 million.
Japanese media said buying Sprint - which competes in the United States against Verizon Wireless and AT&T Inc - would also make it cheaper for Softbank to procure smartphones and other mobile devices.
Wells Fargo's Fritzsche said regulators would likely look favorably upon a deal that would bring an outside international player to the United States.
Japanese companies made a record 642 cross-border deals last year, according to Thomson Reuters data. Buoyed by a stronger yen , the value of all overseas deals rose to $69.5 billion, up 81 percent from 2010, also a record.
(Additional reporting by Mari Saito and James Topham in Japan, Sruthi Ramakrishnan in Bangalore and Carey Gillam in Overland Park, Kansas; Writing by Ian Geoghegan and Ben Berkowitz; Editing by Ron Popeski, Bernadette Baum and John Wallace)
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