Following Buyout, Softbank and Vodafone Form Questionable JV (SFTBF, VOD)

Softbank Corp's (SFBTF) buyout of Vodafone Japan made sense and has shaken up the Japanese cellular phone market somewhat as the number 1 and 2 players, NTT DoCoMo (DCM) and au by KDDI (Tokyo: 9433) now might actually have a viable number 3 competitor to contend with.

Aside from the concern that Softbank overpaid and took on too much debt, the acquisition seems to be going smoothly.

However, this morning I read that the two firms are setting up a 50:50 joint venture that according to AP coverage on Yahoo! Finance will be targeting "mostly" Japan for development of mobile phones, services, and content. Wait a minute! I thought Softbank made the acquisition because it thought it could do all the things Vodafone was unable to, chiefly in developing attractive handsets and services. This move doesn't make sense and instead looks like an act of sympathy by Softbank. AP continues:

The new deal gives Vodafone a way to hang onto the piece of the phone business in Japan after it agreed in March to sell its Japanese mobile phone unit, which had been struggling, to Softbank Corp.

If that sounds ridiculous, how about the 11 billion yen ($100 million) capitalization of the JV.

The only the way this makes sense but effectively contradicts the earlier statement by the two companies is in Softbank CEO Masayoshi Son's comment that:

We hope to grow not only in the Japanese market but also globally by working with Vodafone.

So to me this deal looks like a costly quid pro quo. Vodafone should have just bowed out of the Japanese market completely instead of trying to hang on. Softbank's bigger rivals DoCoMo and KDDI hardly try and grow overseas so what makes Son think he can do it, and especially with the battle he has to manage at home?

Click here for the AP/Yahoo! Finance article.