Japan is Buying Up the World

The just-announced deal for a 70% stake of Sprint Nextel Corp. is huge, but it is only part of the story.

Softbank, Japan's third biggest phone operator is now in talks to buy about $12 billion in existing Sprint shares at a premium and another $8 billion in newly issued shares.

The deal would transform Softbank into one of the world's largest telecommunications groups with about 90 million subscribers. It expects to complete the deal by mid-2013.

At $20 billion, the deal will be the biggest publicly announced foreign acquisition by a Japanese company.

Meanwhile, there have been plenty of foreign deals in recent years that have not drawn such widespread attention. With the Japanese economy in dismal shape and low sales, companies are reaching out for any chance of growth.

For example, Softbank has seen handset shipments have sunk 27% in Japan over the past five years. Mobile-handset sales in the U.S. increased to 191 million units last year from 182 million units in 2007

The Sprint deal will push 2012 foreign corporate acquisitions by Japanese companies to near-record levels from last year.

Fueled by a strong yen and cheap borrowing costs, Japanese companies have been buying overseas assets at a frenzied pace, already spending more than $65 billion so far this year.

Considering Japan's GDP growth is stagnant and trending downward towards recession, Japanese companies have a strong incentive to make risky deals for any growth potential.

However, they will have a hard time finding a safe harbor in today's economic climate.

Softbank shares have fallen more than 20% in Tokyo trading since news broke late Thursday. Traders are clearly very worried about the additional debt and the aggressive move into a brand new market.

With the threat of recession growing by the day in the USA and Europe, time will only tell if any of these deals will -- or even can -- pay off.