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UPDATE 5-Japan's Softbank seeks majority Sprint stake-source

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* Deal would give Softbank cheaper access to smartphones

* Deal could be at 27 percent premium - analyst

* Sprint, Clearwire soar in early trade, MetroPCS sinks

(Updates shares to open, adds debt markets)

By Taro Fuse and Sinead Carew

TOKYO/NEW YORK, Oct 11 (Reuters) - Japanese mobile carrierSoftbank Corp is in talks to buy a majority stake inU.S. operator Sprint Nextel Corp for more than 1 trillionyen ($12.8 billion), according to a source with direct knowledgeof the matter, adding yet another potential shake-up to thefast-changing U.S. wireless market.

Softbank, Japan's No. 3 carrier, said reports about thetalks were "based on speculation" and it had no comment. Sprintdeclined to comment.

Sprint Nextel, whose market capitalization was $15.12billion at Wednesday's market close, is the third-largest U.S.carrier, with more than 56 million users at the end of June.

It has often been rumored as both a buyer and a seller inthe last couple of years, as peers seek ways to consolidate andwring fresh profit out of the maturing market.

Shares surged nearly 17 percent to $5.88 in early trading,their highest in 16 months. Meanwhile Sprint bonds surged onheavy volume and the coast of protecting that debt againstdefault plunged sharply.

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Kevin Roe at Roe Equity Research estimated that Softbankcould be offering about $6.40 per Sprint Nextel share, a 27percent premium to Wednesday's close.

Softbank is in talks with several banks to borrow money tofinance a bid, the source told Reuters. One analyst said thisdeal might be the Japanese company's only option if it has eyeson the American market.

"In terms of (Sprint) standalone, we believe the assetrepresents the only way for a potential new entrant to get anational presence immediately in the U.S.," Wells Fargo analystJennifer Fritzsche wrote in a note to clients.

WEALTHY FOUNDER

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

It lost that monopoly last year, when rival KDDI Corp

also began to offer it. Softbank faces toughercompetition at home against KDDI and 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. It said the buy would give it a total of 39million users, just ahead of KDDI's 36 million.

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

NETWORK REVAMP

Sprint, led by Chief Executive Dan Hesse, has been bleedingcustomers for years and is in the middle of a costly networkmodernization project that involves upgrading its Sprintnetwork. At the same time, it is decommissioning the Nextel iDennetwork it 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."

Sprint may also be attractive as it has a majority interestin wireless data company Clearwire Corp , which ownsattractive spectrum, Wells Fargo's Fritzsche said. Analysts atEvercore said Softbank and Clearwire are both in the process ofupgrading their networks to the same standard, which might addfurther synergies.

Clearwire shares rose 29 percent in early trading to $1.68,their highest in a month.

JAPANESE FORAY

Fritzsche said regulators would likely look favorably upon adeal that would bring 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 overseas 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.

The Japanese are no stranger to U.S. wireless companies. NTTDocomo was once a major shareholder of the former AT&T Wirelessand explored an outright bid for the company at one time.

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

It was unclear what effect, if any, the Softbank offer mighthave on Sprint's potential pursuit of MetroPCS. Shares fell 8percent to $11.08 in early trading.

(Additional reporting by Mari Saito and James Topham, withSruthi Ramakrishnan in Bangalore; Writing by Ian Geoghegan andBen Berkowitz; Editing by Ron Popeski, John Wallace andBernadette Baum)

((Ben.Berkowitz@thomsonreuters.com)(+1-617-856-4334)(Reuters

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