UPDATE 3-Eyeing Sprint, Softbank in $23 bln loan talks - sources


* In talks with Mizuho, SMFG, MUFG for syndicated loan -sources

* Softbank shares down as much as 17 pct in Tokyo * Broker warns of "unacceptable" debt levels

(Adds U.S. market open, S&P action on Softbank)

By Taro Fuse and Mari Saito

TOKYO, Oct 12 (Reuters) - Japanese wireless service providerSoftbank Corp is in talks with three major Japanesebanks to borrow $23 billion (1.8 trillion yen) to finance a bidfor U.S. operator Sprint Nextel Corp , sources with directknowledge of the matter told Reuters on Friday.

Softbank has been looking at how to break into the U.S.market for months, eyeing growth beyond its stagnating homemarket, according to a person with knowledge of its planning.But one brokerage warned that a deal of this size could leaveSoftbank with "unacceptably high" levels of debt.

Sprint, whose market value jumped by $2 billion to around$17 billion on news of its talks with Softbank - confirmed byboth companies - has net debt of about $15billion, while Softbank has net debt of about $10 billion.

Adding the $2 billion net debt of smaller rival eAccess Ltd, which Softbank recently agreed to buy, would raise thenew company's "post-deal gearing levels to unacceptableheights," Societe Generale said in a client note. "This dealsimply appears to be driven by Masayoshi Son's belief thatSprint Nextel is too cheap, and little more."

Son, 55, and ranked by Forbes as Japan's second-richest man,has built Softbank from a small packaged software vendor in theearly 1980s to a telecoms-centered group worth more than $40billion through a series of risky acquisitions.

Buying about 70 percent of Sprint Nextel could be hisriskiest yet.

Analysts said Son - a Japanese citizen of Korean heritagewho went to high school and college in California - was likelytaking advantage of both a strong yen and a shake-up in a U.S.wireless market dominated by AT&T and Verizon tomake his move.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GRAPHIC: Japan outbound M&A BREAKINGVIEWS: Tie-up gets bad market signal ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> TWO-STEP DEAL?

Softbank's ambitions may not stop with just Sprint, whichmight be looking to buy out its partner, wireless serviceprovider Clearwire Corp . The Japanese company might useSprint as a vehicle to buy smaller U.S. mobile provider MetroPCSCommunications Inc , which this month agreed to mergewith T-Mobile USA, part of Deutsche Telekom AG .

After sharp rallies on Thursday, both Sprint and Clearwiregave up some ground in early trading Friday. Sprint fell 2percent to $5.64 and Clearwire dropped 1 percent to $2.20.MetroPCS was flat in the opening minutes.

A two-step deal to buy Sprint and MetroPCS could cost morethan 2 trillion yen ($25.6 billion), Nikkei newspaper reportedon Friday. It would be the biggest overseas acquisition by aJapanese firm ever and would vault Softbank into the top ranksof wireless carriers worldwide.

Such a deal would lift Japan's overseas M&A to a record $80billion this year, easily beating last year's $69 billion,Thomson Reuters data showed.

But investors' biggest concern is how Softbank would financesuch a big buy. Some analysts also queried the business logic ofcombining Japan's No. 2 wireless service with the No. 3 carrierin the United States.

"How Softbank will finance this deal, what this means formanagement structure and its finances, that's where the marketis looking right now," said Mitsushige Akino, chief fund managerof Mitsuyoshi Asset Management.

The proposed bank syndicate in talks with Softbank includesMizuho Financial Group Inc , Sumitomo Mitsui FinancialGroup and Mitsubishi UFJ Financial Group , saidthe sources, who asked not to be named as the talks are private.


Standard & Poor's put its "BBB" long-term rating on Softbankon credit watch with negative implications, saying the deal "mayundermine Softbank's financial risk profile."

Investors dumped Softbank shares in Tokyo on Friday, pushingthe stock down as much as 17 percent in its biggest one-daydecline and knocking close to $7 billion off its market value.

"The strong yen is probably one of the reasons forSoftbank to acquire overseas assets, but I don't think this dealwill be good for Softbank," said Yasuo Sakuma, portfolio managerat Bayview Asset Management in Tokyo.

"For Sprint, this seems a must-do deal, while it's not forSoftbank. The U.S. mobile telecom market is already mature," hesaid. "It's going to be very difficult to turn Sprint around."

By raising new equity directly - selling new shares toSoftbank - Sprint would be able to shore up its balance sheetand fund other deals, such as buying out Clearwire, in which italready holds about a 48 percent stake, analysts said.

Sprint, which has been looking for new funding sources, hassaid it has enough money to last until at least mid-2013. Itdeclined comment on Thursday and its chief financial officerpulled out of a conference presentation at the last minutewithout explanation.

Shares in eAccess dropped 15 percent on Friday as the marketadjusted the value of the agreed Softbank share swap deal in thewake of Softbank's sharp slide.

($1 = 78.5100 Japanese yen)

(Additional reporting by Dominic Lau; Writing By Kevin Krolickiand Ben Berkowitz; Editing by Ian Geoghegan)




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