Softbank's ambitions may not stop with Sprint, which might be looking to buy out its partner, wireless service provider Clearwire Corp.
The Japanese company might use Sprint as a vehicle to make a run at smaller Sprint peer MetroPCS Communications Inc, a two-step transaction that would potentially cost more than 2 trillion yen (15.93 billion pounds), a Nikkei report said.
That would make the deal the biggest ever overseas acquisition by a Japanese company and vault Softbank into the upper echelons of wireless carriers worldwide.
Softbank and Sprint confirmed they are holding talks. While Sprint shares rose more than 14 percent, investors dumped Softbank shares in Tokyo on Friday, pushing the stock down as much as 17 percent to its lowest level in nearly five months.
"How Softbank will finance this deal, what this means for management structure and its finances, that's where the market is looking at right now," said Mitsushige Akino, chief fund manager of Mitsuyoshi Asset Management.
Softbank is eyeing a controlling stake in Sprint worth more than 1 trillion yen ($12.8 billion) and is in talks with several banks on financing the bid, a source with direct knowledge of the matter said.
A second source, who would not speak on the matter publicly, said Softbank was seeking a stake of about 70 percent, which it could achieve by buying some newly issued shares directly from Sprint and tendering for the rest.
By raising new equity directly, Sprint would be able to shore up its balance sheet and potentially fund other deals, such as a buyout of Clearwire in which it already holds about 48 percent.
Sprint shares rose as much as 19 percent on Thursday to their highest levels since the summer of 2011, on the heaviest trading volume in the stock's history. The stock closed 14.3 percent higher at $5.76 on New York Stock Exchange.
Clearwire shares closed almost 71 percent higher at $2.22. Clearwire, which has been looking for new funding sources, has said it has enough money until at least the middle of 2013.
It declined to comment on Thursday and its chief financial officer pulled out of a conference presentation at the last minute without explanation.
A major Sprint investor said any Softbank investment should be used to buy out the rest of Clearwire, to give Sprint attractive wireless spectrum assets and to speed up Clearwire's upgrade of its wireless network with faster data speeds.
"I just don't think there's any deal unless it involves Clearwire. I don't think you'd see one without the other," said Daniel Martino, a fund manager at T. Rowe Price, which owned 47.2 million Sprint shares as of the end of June.
Sprint, whose market capitalisation was $15.12 billion at Wednesday's market close, is the third-largest U.S. carrier, with more than 56 million users at the end of June, even after losing customers for years.
"In terms of (Sprint) standalone, we believe the asset represents the only way for a potential new entrant to get a national presence immediately in the U.S.," Wells Fargo analyst Jennifer Fritzsche wrote in a note to clients.
The Softbank news comes just days after a source told Reuters that Sprint had been considering bidding for MetroPCS, which agreed this month to merge with Deutsche Telekom AG's T-Mobile USA.
MetroPCS shares fell sharply at the open, turned positive in but then fell again, ending down 3.3 percent at $11.64.
At Sprint headquarters in Overland Park, Kansas, a long time manager of the company said takeover rumours were nothing new.
"This will be interesting to see if it happens; if it has legs," the manager, who declined to be identified, said. "There are always a bunch of rumours. Something like this is always a possibility when your stock price is so low."
Softbank has been exploring ways to get into the U.S. market for some months, as it sees opportunities for growth that would help offset a stagnating market in Japan, said a third source, who declined to be identified.
Founded and led by Masayoshi Son - ranked by Forbes as Japan's second-richest man - Softbank has grown from a packaged software distributor 30 years ago into a broad telecommunications group worth more than $40 billion.
"He's the definition of patient capital," Martino of T. Rowe Price said.
But it faces tougher competition at home against the likes of KDDI Corp and NTT Docomo.
Japanese media said buying Sprint - which competes in the United States against Verizon Wireless and AT&T Inc - would also make it cheaper for Softbank to procure smartphones and other mobile devices.
Benjamin Powell, a former general counsel to the director of national intelligence now in private practice at WilmerHale, said the deal was very likely to require a government review because it involved sensitive telecommunications networks. But several analysts said regulators were likely to eventually look favourably on a deal.
Japanese companies made a record 642 cross-border deals last year, Thomson Reuters data show. Buoyed by a stronger yen, the value of all overseas deals rose to $69.5 billion, up 81 percent from 2010, also a record.
(Additional reporting by Mari Saito and James Topham in Tokyo, Sruthi Ramakrishnan in Bangalore, Soyoung Kim and Martinne Geller in New York, Rachelle Younglai in Washington and Carey Gillam in Overland Park, Kansas; Writing by Ian Geoghegan and Ben Berkowitz; Editing by Bernadette Baum, Andre Grenon and John Wallace)