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UPDATE 3-Japan's Softbank in talks for $12.8 bln Sprint stake - source

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* Softbank to buy majority in Sprint - source

* Deal would give Softbank cheaper access to smartphones -media

* Deal could be at 27 percent premium - analyst

(Adds analysts' comments, background)

By Taro Fuse

TOKYO, Oct 11 (Reuters) - Softbank Corp , Japan'sthird-largest mobile carrier, is in talks to buy a majoritystake in U.S. operator Sprint Nextel Corp for more than 1trillion yen ($12.8 billion), said a source with directknowledge of the matter, as it seeks to expand overseas.

Softbank said reports about the talks were "based onspeculation". "We have not announced anything. We do not commenton speculation," the company said. No one from Sprint wasimmediately available for comment.

Sprint Nextel, worth $15.12 billion at Wednesday's close, isthe third-largest U.S. carrier, and had more than 56 millionusers at end-June.

Kevin Roe at Roe Equity Research estimated Softbank could beoffering around $6.40 per Sprint Nextel share - implying a 27percent premium to Sprint's Wednesday close.

Softbank is in talks with several banks to borrow money tofinance a bid, the source told Reuters.

WEALTHY FOUNDER

Softbank, founded and led by Masayoshi Son - Japan'ssecond-richest man, according to Forbes - was the first ofJapan's leading mobile carriers to offer Apple Inc'siPhone in Japan.

It lost that monopoly last year, when rival KDDI Corp

also began offering the device. Softbank faces toughercompetition at home against KDDI and market leader NTT Docomo.

The company has grown from a packaged software distributor30 years ago into a broad telecoms group worth more than $40billion. It took over Vodafone Japan in 2006.

As it chases market share, Softbank said this month it wouldbuy smaller mobile service operator eAccess Ltd in a$1.84 billion deal, saying this would give the firm a total of39 million users, just ahead of KDDI's 36 million.

That deal was struck at a premium of more thanthree times eAccess's share price. NETWORK REVAMP

Sprint, led by CEO Dan Hesse, has been bleeding customersfor years, and is in the middle of a costly networkmodernisation project which involves upgrading its Sprintnetwork at the same time as it decommissions the Nextel iDennetwork - once famous for its walkie-talkie style feature - thatit bought in 2005.

"The challenge is not access to capital," said Roe. "Thechallenge is that they're sub-scale (much smaller than rivalsAT&T and Verizon) and going through a very challenging networktransition."

Japanese media said buying Sprint - which competes in theUnited States against Verizon Wireless and AT&TInc - would make it cheaper for Softbank to procuresmartphones and other mobile devices.

"The asset (Sprint-Nextel) represents the only way for apotential new entrant to get a national presence immediately inthe U.S., especially given T-Mobile's recent signalling that itwill reinvest in the market and no longer seems willing to sellitself near-term," said Wells Fargo analyst Jennifer Fritzschein a note.

Sprint may be attractive to Softbank as it has a majorityinterest in Clearwire Corp , which owns 2.5 Ghzspectrum, Fritzsche said, adding that Softbank is one of fewglobal carriers that has an active 2.5GHz TDD / LTE network.

Fritzsche noted regulators would likely look favourably on adeal that would bring in an outside international player to theUnited States.

Japanese companies made a record 642 cross-border deals lastyear, according to Thomson Reuters data. Buoyed by a strongeryen , the value of all outbound deals rose to $69.5billion, up 81 percent from 2010, also a record.

The biggest foreign acquisition by a Japanese company todate was Japan Tobacco's 1.8 trillion yen buy ofBritish-based tobacco firm Gallaher in 2007.

Sprint is considering whether to make a counter-bid forsmaller rival MetroPCS Communications , which this monthagreed to merge with Deutsche Telekom's T-Mobile USA,a source told Reuters this week.

(Reporting by Mari Saito and James Topham, with; additionalreporting by Sruthi Ramakrishnan in Bangalore; Writing by IanGeoghegan; Editing by Ron Popeski)

((ian.geoghegan@thomsonreuters.com)(Reuters Messaging:ian.geoghegan.thomsonreuters.com@reuters.net))

Keywords: SPRINT SOFTBANK/