DealBook: Lenovo Agrees to Buy IBM Server Business for $2.3 Billion

DealBook: Sprint Agrees to Sell Majority Stake to SoftBank

Yoshikazu Tsuno/Agence France-Presse — Getty ImagesDaniel Hesse, left, the chief of Sprint Nextel, and Masayoshi Son, the president of SoftBank, announced the deal in Tokyo on Monday.

4:15 a.m. Monday | Updated

The struggling cellphone service provider Sprint Nextel has agreed to sell 70 percent of itself to SoftBank of Japan for $20.1 billion, its boldest move yet to revive its fortunes.

In a statement on Monday, SoftBank, a big Japanese telecommunications company, said it would pay $8 billion to buy newly issued Sprint stock worth about $5.25 a share. It will then pay $12.1 billion to buy existing stock from other investors at $7.30 a share, a premium to current levels.

The deal remains subject to approval by regulators and Sprint’s shareholders, but has been approved by the boards of both companies, SoftBank said in the statement. The transaction is expected to close in the middle of 2013.

Shares in Sprint have risen 14 percent since the wireless company confirmed on Thursday that it was in negotiations with SoftBank, closing at $5.73 on Friday.

Sprint is also working to gain more control over Clearwire, a wireless broadband company in which it owns a large stake, people familiar with the matter said. But closing the transaction with SoftBank is the biggest priority for now.

Once completed, the deal would give Sprint some much-needed cash as it aims to compete against its bigger rivals, Verizon Wireless and AT&T.

Sprint, which has long struggled to recover from its 2005 merger with Nextel, has been spending billions of dollars to build a next-generation data network to support the latest smartphones like the Apple iPhone 5.

It remains well behind Verizon and AT&T in offering Long-Term Evolution, or LTE, data service, though the company is well ahead of T-Mobile USA, the country’s fourth-largest wireless service provider.

At the same time, Sprint is laboring under nearly $21 billion of debt, some of which is set to mature next year.

And if a proposed merger of T-Mobile and MetroPCS is completed, Sprint will face a tougher competitor in the world of lower-priced cellphone service. Both companies have pitched unlimited data plans to customers at lower costs than those for plans offered by the big two providers.

Sprint has often hinted that deal-making was in its future. Its chief executive, Daniel Hesse, has said that he expects to participate in the industry’s continuing consolidation.

But the deal with SoftBank came as a surprise to many analysts and investors. Until now, the Japanese company has been focused on gaining share in its home market, largely through acquisitions and building out an LTE high-speed data network. And until recently, it had been focused on reducing its enormous debt load, which stood at nearly $13 billion as of June 30.

Shares of SoftBank fell nearly 17 percent after it confirmed the talks last week and dropped another 5.3 percent, closing at 2,268 yen apiece, in trading in Tokyo on Monday.

Still, the Japanese company’s chief executive, Masayoshi Son, has harbored ambitions to move into the much bigger American market. Sprint has been one of the few significant players up for grabs, and may eventually serve as a vehicle for future deals — perhaps even one for the enlarged T-Mobile, several years from now.

The two sides are betting that American government regulators will favor any transaction that strengthens competition, avoiding the harsh opposition to AT&T’s $39 billion bid for T-Mobile last year.

Mr. Son, an Internet entrepreneur, had already broken into an industry dominated by two established rivals when he bought Vodafone’s Japanese arm in 2006. He has steadily built the company into a major new competitor, one poised to become Japan’s second-biggest wireless service provider, after NTT DoCoMo, with the acquisition of a smaller rival, eAccess.

The Raine Group and Mizuho Securities were lead financial advisers to SoftBank. Deutsche Bank also provided legal advice. SoftBank’s legal advisers included Morrison & Foerster as lead counsel, Mori Hamada & Matsumoto as Japanese counsel, Dow Lohnes as regulatory counsel, Potter Anderson Corroon LLP as Delaware counsel, and Foulston & Siefkin LLP as Kansas counsel.

Citigroup, Rothschild and UBS advised Sprint. Skadden, Arps, Slate, Meagher & Flom was lead counsel to Sprint. Lawler, Metzger, Keeney & Logan served as regulatory counsel, and Polsinelli Shughart served as Kansas counsel.

DealBook: Sony Agrees to Acquire Stake in Olympus

TOKYO — Sony is set to become the biggest shareholder in Olympus with an investment of 50 billion yen, or $645 million, investment, the two companies announced Friday.

The deal could give struggling Sony a jump-start in the lucrative medical equipment business, while helping to bolster Olympus’s balance sheet following its $1.7 billion accounting scandal.

Sony and Olympus will form a joint venture to develop and manufacture endoscopes and other medical devices, the companies said in a statement. Olympus controls about 70 percent of the world’s market for medical endoscopes.

The two companies will also consider cooperating in digital cameras, they said.

Sony, struggling after four years of losses because of its slumping TV business, has been looking for new sources of revenue. It entered the medical device field last year by acquiring the American medical diagnostics firm Micronics for an undisclosed sum. Sony’s president, Kazuo Hirai, has said medical businesses could one day be a major profit driver.

Meanwhile, Olympus, which admitted last year to hiding losses for over a decade, is desperate to shore up its capital.

It replaced its entire board, restated five years of earnings and took a $1.3 billion write-down after acknowledging that it obscured what it said were past investment losses in inflated mergers and acquisition payments.

The deal announced on Friday calls for Sony to take a 11.5 percent stake in Olympus by buying new Olympus shares for 1,454 yen a share — a 4 percent discount to Friday’s closing price.

The two companies will set up a joint company by the end of the year, of which Sony will hold 51 percent and Olympus will hold 49 percent, the companies said. Sony will also select a director to serve on Olympus’s board.

In statements, Hiroyuki Sasa, the Olympus president, and Mr. Hirai of Sony both stressed that the deal would bring together Sony’s technological edge in digital imaging with Olympus’s already-dominant position in the medical field.

‘‘By accepting an investment from Sony, we will not only strengthen our financial base, but also combine our strengths and develop the kind of medical devices that we may not have been able to develop on our own,‘‘ Mr. Sasa said.

Sony will position the medical field ‘‘as one of Sony’s future core businesses,’’ Mr. Hirai said.

Olympus shares gained 1.7 percent to 1,520 yen in Tokyo on Friday, after the Nikkei business daily carried a report on the deal in its morning edition. Shares in the company, which lost nine-tenths of their value after the scandal erupted last October, have recovered to almost half their pre-scandal levels.

Shares in Sony fell 1.1 percent to 919 yen. Its shares have already slumped 34 percent this year.

On Tuesday, Standard & Poor’s cut Sony’s long-term debt rating a notch to BBB, the second-lowest investment grade, and warned of further downgrades unless Sony turns its business around.

In Europe, Facebook Agrees to Stop Facial Recognition

The company promised European regulators that it would forgo using facial recognition software to automatically identify its users on the Continent, and delete a database that held millions of pictures uploaded in Europe.

The decision could have wide repercussions on how facial recognition technology — a particularly sensitive technological advance — is used globally as surveillance cameras are increasingly installed in public spaces.

“This is a big deal,” said Chris Hoofnagle, a law professor at the University of California, Berkeley who specializes in online privacy.

“The development of these tools in the private sector directly affects civil liberties,” he explained. “The ultimate application is going to be — can we apply these patterns in video surveillance to automatically identify people for security purposes and maybe for marketing purposes as well?”

The agreement comes as Facebook is under pressure from Wall Street to profit from its vast trove of data, including pictures, and also from regulators worldwide over the use of personal information.

The decision in Europe applies to the “tag suggestion,” a Facebook feature that deploys a sophisticated facial recognition tool to automatically match pictures with names. When a Facebook user uploads a photo of friends, the “tag suggestion” feature can automatically pull up the names of the individuals in the image.

The facial recognition software was developed by an Israeli company, Face.com, which Facebook acquired for an undisclosed price in June.

The company quietly and temporarily pulled the plug on “tag suggestion” for all Facebook users several months ago. The company said on Friday it was to “make improvements to the tool’s efficiency” and did not say how soon it would be restored. However, the company promised European regulators on Friday that it would reinstate the feature on the Continent only after getting their approval.

Facebook declined to say under what circumstances the “tag suggestions” would be back online in the United States or elsewhere.

Facebook’s promise to the European regulators is part of an investigation into whether the company’s data collection practices comply with European privacy rules. It was made with regulators in Ireland, where the company has its European headquarters.

“We will continue to work together to ensure we remain compliant with European data protection law,” Facebook said in a statement.

Europe is an important market for the company, as it struggles to prove its worth on Wall Street. About one in four Facebook users logs in from Europe. According to the company’s earnings figures, Europe accounts for just under a third of its advertising revenue.

Pictures have always been vital to Facebook. Pictures are what drew users to Facebook in its earliest days, and pictures are what continue to keep people coming back. Facebook users upload 300 million images a day. The company’s acquisition of Instagram, the photo-sharing site, eliminated its biggest rival in this area.

Photo tagging is important for Facebook in the sense that it allows the social network to better analyze with whom its users interact in the real world.

In addition to scrutiny from European regulators, Facebook has also come under fire from consumer protection groups and lawmakers in the United States over its use of facial recognition technology. At a hearing on Capitol Hill last July, Senator Al Franken, Democrat of Minnesota, described Facebook as the “world’s largest privately held database of face prints — without the explicit consent of its users.”

On Friday, Mr. Franken said in an e-mail statement that he hoped Facebook would offer a way for American users to opt in to its photographic database.

“I believe that we have a fundamental right to privacy, and that means people should have the ability to choose whether or not they’ll be enrolled in a commercial facial recognition database,” he said. “I encourage Facebook to provide the same privacy protections to its American users as it does its foreign ones.”

The Electronic Privacy Information Center, an advocacy group in Washington, filed a complaint with the Federal Trade Commission over Facebook’s use of automatic tagging. The complaint is pending. The commission has a consent order with Facebook that subjects the company to audits over its privacy policies for the next 20 years.

Personal data is Facebook’s crown jewel, but how to use it artfully and profitably is arguably its biggest challenge. Facebook has access to a tremendous amount of information about its one billion users, including the photos they upload every day. Marketers have pushed for greater access to that data, so as to tailor the right message to the right customer. Consumers and lawmakers have resisted, to different degrees in different countries around the world.

“They are pushing the edges of what privacy rules may allow, just as an aggressive driver might with parking rules,” said Brian Wieser, an analyst with the Pivotal Research Group, a research firm in New York. “You don’t know you’ve broken a law until someone says you’ve broken a law.”

Several independent application developers are experimenting with how to use facial recognition technology in the real world, and have sought to use pictures on Facebook to build products of their own.

For example, one company in Atlanta is developing an application to allow Facebook users to be identified by cameras installed in stores and restaurants. The company, Redpepper, said in a blog post that users would have to authorize the application to pull their most recent tagged photographs. The company said its “custom-developed cameras then simply use this existing data to identify you in the real world,” including by offering special discounts and deals.