Japanese mobile carrier Softbank and U.S. operator Sprint Nextel are in talks about a deal that could see Softbank assume control of Sprint.
The news sent Softbank shares plunging 16 percent, underperforming the Nikkei average, which was flat.
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.
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.