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Softbank to buy Vodafone mobile unit in Japan

Internet services company Softbank said Friday that it is acquiring a 97.7 percent stake in British mobile phone company Vodafone's struggling Japan unit, in a move that will greatly boost its foray into the cell phone business.
In this Jan. 18, 2006, file photo, a model shows off Vodafone 804SS for during a news conference in Tokyo.Itsuo Inouye / AP
/ Source: The Associated Press

Internet services company Softbank said Friday that it is acquiring a 97.7 percent stake in British mobile phone company Vodafone's struggling Japan unit, in a move that will greatly boost its foray into the cell phone business.

The deal, expected to be final in a month or two, is valued at 1.75 trillion yen ($15 billion), Softbank President Masayoshi Son told reporters at a news conference at a Tokyo hotel.

The purchase of Vodafone Group PLC's Japan unit will allow Softbank to take over the more than 15 million Japanese users who have signed on to the carrier, as well as its mobile network, instead of building it from scratch.

Vodafone Group PLC said it will return 6 billion pounds ($10.5 billion) in cash to shareholders after agreeing to the sale, with the precise method of distribution to be released in May. It also said the sale will increase adjusted earnings per share.

The British company said it intends to complete its existing 6.5 billion pound ($11.4 billion) buyback program by the end of March.

Tokyo-based Softbank, which has scored success with its broadband service Yahoo! BB in Japan, has been trying to move into the cell phone business for some time.

"Through the purchase of Vodafone in Japan, Softbank can now enter the mobile phone business quickly and fully," said Son, a charismatic businessman and graduate of University of California, Berkeley.

"I've always said we're determined to enter the mobile business in some shape or form," he said.

Softbank has been aggressive in offering broadband services here and dominates the country's market in Internet Protocol telephoning — technology that transmits phone calls as data over broadband Internet connections.

Its other business includes online gaming, electronic stock trading, Net broadcasting and an investment arm. Softbank also owns the Fukuoka Softbank Hawks professional baseball team.

Meanwhile, Vodafone, the world's largest mobile phone company by revenue, has struggled to boost its business in Japan amid tough competition from the two biggest players, NTT DoCoMo and KDDI Corp.

Vodafone Chief Executive Arun Sarin had been under pressure from investors to address the poor performance of the Japan business, which had been plagued by problems and failed to make an impact in the competitive region.

"We have been making progress on the turnaround in recent months," Sarin said in a statement. "However, given the relative competitive position of the business, the reduced prospects for superior long term returns and a good offer from SoftBank, the board took the decision to sell."

Sarin said the company's agreement to sell its Japanese unit to Softbank is definitive and it will complete the deal even if a rival bid emerges.

The market welcomed the sale and Vodafone shares were up 2.5 pence (4.3 U.S. cents) at 132.5 pence ($2.32) on the London Stock Exchange in early trading.

Softbank's stock jumped 4 percent in Tokyo trading to close at 3,140 yen ($27).

Vodafone's share of the Japanese market has shrunk over the past two years after it delayed the launch of third-generation, or 3G, services in the region. Third-generation cell phones relay data at faster speeds than conventional phones and can be used to enjoy larger data, such as longer streaming video and music downloads.

Vodafone said that under international financial reporting standards it will record an impairment charge of 4.9 billion pounds in its results for the year ending March 31, in respect of its interest in Vodafone Japan.

Bill Morrow, who heads Vodafone's Japan unit, said other offers were considered but Softbank offered the best deal.

Overnight, a person familiar with the discussions said investment firms Providence Equity Partners Inc. and Cerberus Partners LP were readying a $15 billion bid for Vodafone's Japanese unit.

The competition in mobile phones in Japan is expected to heat up in the fall, when the nation will start allowing people to switch carriers without changing phone numbers.

Softbank's efforts have not only helped spread broadband in Japan but also brought down prices. Its expansion into the cell phone business could also bring down prices for such services, although Son said pricing had not yet been decided. It will take half a year and a year to change into the new brand, and details of the brand aren't yet decided, he said.

In 2004, Softbank bought the fixed-line company Japan Telecom Co. and the Japanese unit of British telecom Cable & Wireless PLC.