February 7, 2020

Breakingviews: Elliott’s hard nose meets with Son’s SoftBank

by Breakingviews.

Activist investors are usually pretty hard-headed. That could turn Elliott Management’s nearly $3 billion stake in Masayoshi Son’s $90 billion SoftBank Group, as reported by Reuters and others, into a face-off between cynics and dreamers.

It’s logical the activist should take a swipe at Son’s hugely undervalued empire. Lots of debt, bold – or foolhardy – tech investments like office-sharing outfit WeWork, and one man’s concentrated influence all make SoftBank a target for an investor hoping to be a catalyst for a surge in value. Breakingviews predicted in December that the company, then potentially worth over $200 billion by our tally assessing each of its assets separately, could attract interest from someone like Elliott.

A big chunk of the asset value is in listed stakes like Chinese e-commerce giant Alibaba and SoftBank’s now separately traded telecoms unit. Yet the whole has been beaten down partly because investments by the company and its affiliated $100 billion Vision Fund in WeWork, Uber Technologies, India’s Oyo and others are looking a lot less smart than they once did. A renegotiation of the merger between SoftBank-controlled Sprint and T-Mobile US is a risk, too.

Some of what Paul Singer’s firm is angling for, like improving the decision-making process at SoftBank and the Vision Fund, makes sense. Stronger governance, including a more independent and diverse board, could make investors more confident. Stock buybacks are another proposal, and a standard part of most activists’ playbook – but they are a sideshow relative to the bigger issues in SoftBank’s case, even if they are funded by the sale of assets rather than yet more debt.

Elliott doesn’t give up easily, making it one of the few activists that could take on SoftBank. Son’s 22% stake makes overriding his control a difficult task. He may share some of Elliott’s goals – he certainly thinks the company is undervalued, and he has belatedly come to believe his tech investments need to seek profit, not just growth at any cost.

If so, Elliott’s being around to keep tabs can only help keep Son on track. But the SoftBank boss may also lean towards vision and instinct over discipline and hard cash. It’s a test of the scope to rein in his optimism.


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