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Announcement:

Moody's: Softbank Corp. new acquisitions of Brightstar and Supercell Oy heighten operational risks, impact on leverage and rating is limited for now

 The document has been translated in other languages

Global Credit Research - 19 Oct 2013

Tokyo, October 19, 2013 -- SoftBank Corp. (Ba1/stable), announced on Japan time October 15th and 19th that it plans to acquire two companies -- US Brightstar Corp. (Brightstar, CFR Ba3 on review for upgrade) and Finland Supercell Oy (not rated) for an estimated total of USD2.5 billion.

Softbank will initially acquire in conjunction with its consolidated subsidiary GungHo Online Entertainment Inc. (GungHo, not rated) 51% of Supercell Oy's outstanding voting shares for a total amount of USD1.53 billion. The transaction is expected to close between end of October to beginning of November 2013. Softbank will own 80% of the acquired shares and GungHo 20%. SoftBank also announced that in its first step, it will acquire 57% of Brightstar's outstanding shares and is expected over the next five years to exercise warrants for an additional 13% of the company. The company estimates the total investment for the Brightstar transaction to total USD1.26 billion.

The impact of the two acquisitions will only marginally increase SoftBank's debt and reduce liquidity but will, add to the transformation and operational risks, in Moody's opinion. SoftBank faces in integrating and managing what are now three large acquisitions -- Sprint Communications Inc. (Ba2, stable), Brightstar and Supercell Oy. The SoftBank management team has a long and successful track record of acquiring much larger enterprises, improving operating performance and integrating them into the larger SoftBank group. In several instances, most meaningfully the acquisition of Vodafone K.K., the acquisition was transformational.

With these three acquisitions the company is embarking on a new and more aggressive strategy in several ways. The acquisitions are located and undertake most of their business outside of Japan adding a cross cultural aspect to integration and understanding. While the mobile phone business in the US is similar to that in Japan, Brightstar, as a distributor and logistics company, will be a new business model to be understood and integrated into the SoftBank group. In addition, it adds Latin America, where most of Brightstar's earnings are generated and SoftBank has limited expertise. The Supercell Oy acquisition will enhance the company's content offering but, as are all large acquisitions, an additional integration challenge.

The Brightstar acquisition brings with it the added challenge of the potential for a major shift in the company's customer base. Among the challenges possibly facing Brightstar is its relationship with its current customer base. Brightstar provides services to major mobile phone companies in the US. The impact on existing customer relationships of Brightstar's new ownership structure (largest owner will be a Sprint, a major competitor in the US) is potentially negative.

Moody's expects close cooperation from existing management of the two companies and notes long term relationships between the CEO's of SoftBank and Brightstar as a significant benefit in the integration process.

Nevertheless, the combination of these three complex and large acquisitions will test SoftBank's management team.

SoftBank's size and current liquidity dampen the immediate financial impact from the two acquisitions. The combined cost of approximately JPY250 billion (USD2.5 billion) will reduce SoftBank's liquidity and increase leverage but not meaningfully.

Moody's estimates that cash on hand and internally generated cash flow will allow SoftBank to fund the acquisition with cash on hand.

Assuming the full consolidation of Brightstar (existing debt of approximately USD1billion) and Supercell Oy (no debt) and the use of debt to fully fund the acquisitions, SoftBank's total gross debt at June-end 2013 would increase approximately 5%. Moody's estimates the acquisitions will increase Debt/EBITDA coverage by about 0.2x. SoftBank's adjusted Debt/EBITDA as of June 30, 2013 was 3.5x. Moody's also notes that Brightstar's business consumes significant working capital as part of its normal business operations, and the company's debt balances fluctuate throughout the year.

The principal methodology used in this rating was Moody's "Global Telecommunications Industry," published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Brightstar Corp., established in 1997, is a leading global distributor of wireless handsets, smartphones, tablets and their related accessories. It's business also entails resale of old used handsets, buy-backs, trade-ins and cell phone and wireless device protection and replacement. It is headquartered in Miami Florida with reported revenues of USD7.0 billion and EBITDA of USD 221 million at LTM June-end 2013.

Supercell Oy, established in May 2010, is a mobile game company headquartered in Finland. The company is known for its two game applications "Clash of Clans" and "Hay Day", which are played in 137 and 96 countries respectively offered through Apple's App Store.

SoftBank Corp., headquartered in Tokyo, is a holding company that owns leading global providers of various services, including broadband, fixed-line and mobile telecommunications, software distribution and networking.

Peggy Furusaka
VP - Senior Credit Officer
Corporate Finance Group
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Richard Bittenbender
Associate Managing Director
Corporate Finance Group
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Releasing Office:
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Moody's: Softbank Corp. new acquisitions of Brightstar and Supercell Oy heighten operational risks, impact on leverage and rating is limited for now
No Related Data.

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