September 2, 2020

Breakingviews: SoftBank divestitures set stage to shop again soon

by Breakingviews.

Masayoshi Son’s latest quirky results presentation drew on lessons from Japanese military history. Although unicorns might have been more representative of the SoftBank founder’s cavalry charges than horses, as one analyst noted, the broader point was to illustrate the cash his Japanese tech and technology company was raising to shore up defences. The question is how long before Son embarks on another bold quest for investments.

Since unveiling plans in March to dispose of up to $41 billion of assets, SoftBank has been moving apace. Offloading a slug of wireless operator T-Mobile US and selling down Alibaba raised some $37 billion. SoftBank is now arranging to sell a 22% stake, valued at some $14 billion, in its eponymous Japanese mobile carrier. That will take it well past the target. And a divestiture of chip designer Arm – purchased in 2016 for $32 billion – is on the cards, too.

That harvest, plus accompanying stock buybacks and debt reduction at the urging of pushy hedge fund Elliott Management, helped SoftBank’s share price more than double. Cash on hand matters in times of economic strife, too. It’s a tactical manoeuvre for an aggressive buyer like Son, but none of the deals suggest any change in his longtime, overarching strategy of backing entrepreneurs promising to change the world.

He must be getting itchy, especially as the giant Vision Fund he oversees is also cleaning up its portfolio with exits and internal restructurings. Deploying over $10 billion into big, publicly traded technology companies such as Facebook, as SoftBank has announced, hardly seems likely to satisfy his ambition. That notion is underscored by the company’s declaration last month that it considers operating profit “not useful” as a measure and wants to focus instead on valuations.

In that case, SoftBank’s challenge will be to outperform the market. Its recent 107% stock price gain outpaced the 25% delivered by the benchmark Topix index and 72% from the tech-heavy Nasdaq Composite. Over one, two and five years, however, Nasdaq-tracking investors would have come out better than SoftBank’s, including on a total return basis. If Son is primed to start charging into heavy investing again, as history suggests he will, shareholders may want to consider their own tactical retreat.

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