New Street: SoftBank's $32.1B deal for ARM may lessen chances of a Sprint tie-up with T-Mobile

Japan's SoftBank has agreed to acquire ARM Holdings in a $32.1 billion deal that would mark the biggest-ever purchase of a European technology company. What that might mean for Sprint (NYSE: S), though, is far from clear.

ARM's chip designs power more than 95 percent of smartphones on the market, including high-end handsets from vendors such as Apple (NASDAQ: AAPL) and Samsung. But SoftBank President and CEO Masayoshi Son made no bones about the fact that the deal centered on the burgeoning IoT market.

"We have long admired ARM as a world renowned and highly respected technology company that is by some distance the market-leader in its field. ARM will be an excellent strategic fit within the SoftBank group as we invest to capture the very significant opportunities provided by the 'Internet of Things,'" Son said in a prepared statement. "This is one of the most important acquisitions we have ever made, and I expect ARM to be a key pillar of SoftBank's growth strategy going forward."

Son also said during a news conference Monday that his confidence in a Sprint turnaround helped pave the way for the blockbuster acquisition, according to Reuters. SoftBank claims a stake of more than 80 percent in Sprint, but the fourth-largest carrier in the U.S. has continued to weigh down shares of its parent company as it struggles to regain its footing in the U.S. wireless market. It reported a net loss of $554 million during the first quarter of 2016, more than doubling the $224 million loss it recorded during the same period in 2015.

The huge cash outlay may not be good news for Sprint, which could use some of that fortune to regain its economic footing and continue to upgrade a network that was once a major vulnerability. New Street Research analysts said that while a tie-up between Sprint and T-Mobile may be in the offing once the incentive auction of 600 MHz is over, the acquisition gives SoftBank fewer resources to pull off such a move.

"The ARM deal doesn't diminish the strategic value of a Sprint/T-Mobile deal in any way; however, it reduces the amount of cash that SoftBank could commit to the deal making it marginally more challenging for them to fend off competing offers from Comcast and others," New Street wrote in a research note. "In addition, the ARM deal shows that SoftBank has other things on their mind besides Sprint…. We will think it likely that Sprint/SoftBank will at least attempt a deal; however, the odds of success are marginally less likely, which is a modest negative for Sprint and the rest of the group."

Roger Entner of Recon Analytics seemed to agree. "ARM is an awesome company," Entner tweeted, "but doesn't it look like there isn't really a lot of focus going on at SoftBank?"

The IoT market teems with potential, of course, and it has been the catalyst for a series of major mergers and acquisitions in wireless in recent months. But the ARM acquisition may signal that Son is shifting the company's focus away from a U.S. smartphone market where growth is slowing. Whether such a shift might have an impact on Sprint is unclear.

For more:
- see this Reuters report

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