SoftBank plans $4.8 billion buyback after Elliott’s call

By Pavel Alpeyev

SoftBank Group Corp. plans to spend up to 500 billion yen ($4.8 billion) buying back as much as 7% of its shares, taking a step advocated by activist investor Elliott Management Corp. to boost stockholder value.

The re-purchases will run from March 16 through March 15, 2021 and the shares will be retired, the company said Friday. SoftBank’s shares fell despite the announcement, dropping as much as 9.2% along with the broad market decline.


The scale however falls far short of Elliott’s envisioned amount. The activist investor disclosed a stake of almost $3 billion in SoftBank in February, arguing the company’s shares were substantially undervalued given assets including a stake in Chinese e-commerce giant Alibaba Group Holding Ltd. Elliott advocated for a share buyback of as much as $20 billion, along with governance changes and more transparency about its investments.

Founder Masayoshi Son has also argued his shares are undervalued, and SoftBank itself calculates its stock may be worth more than double the current price. But the Japanese company’s portfolio of startups -- which includes struggling names like WeWork and Oyo Hotels -- remains particularly vulnerable to economic and market shocks from the coronavirus pandemic. The investment giant’s five-year senior credit default swaps -- a hedging tool that indicates the risk of a company going under -- spiked on Thursday to their highest levels since 2016.

“The buyback continues SoftBank’s practice of re-purchases following large drops in the share price,” said Justin Tang, head of Asian research at United First Partners in Singapore. “Given the long drawn-out acquisition period, it is unlikely to provide much support in the market driven by emotions.”

The past 12 months have been tumultuous for Son and SoftBank. The company unveiled a record buyback in February 2019, sparking a rally that pushed shares to the highest since its dot-com peak in 2000. Uber Technologies Inc.’s disappointing public debut and the implosion of WeWork wiped out the gains over the next few months. But SoftBank surged again after Elliott disclosed its stake and Son won approval to sell his Sprint Corp. to T-Mobile US Inc. The latest buyback comes as all of the gains from the activist’s involvement have been wiped out by the growing fears around the coronavirus pandemic.

“Given the spread between what we consider to be the fair value of our company and growing market volatility, we decided on this policy for shareholder return,” SoftBank spokesman Kenichi Yuasa said. “The amount reflects consideration of liquidity on hand and financial stability.”

Investors have grown increasingly wary about SoftBank’s and the Vision Fund’s holdings in startups that have enjoyed abundant liquidity in past years. Son met with fund managers and financial institutions in New York City this month, arguing that recent market declines were an opportunity to invest at discounted valuations. But global economic uncertainty has strained fundraising and stoked worries that startup valuations are stretched -- particularly in sectors vulnerable to the outbreak such as ride-hailing and travel.

Elliott wants SoftBank to set up a special committee to review processes at the Vision Fund, the world’s largest single investment pool for tech startups. Investor Paul Singer’s firm argues the fund has dragged down the share price despite making up a small portion of assets under management, people familiar with the discussions have said.

The activist has also pushed SoftBank to sell some of its stake in Alibaba to pay for a buyback. But Son said during SoftBank’s latest quarterly financial briefing he’d prefer to sell as little as possible and that there’s “no rush” to do so.

Instead, SoftBank last month announced plans to borrow as much as 500 billion yen by putting up shares of its Japanese telecom unit as collateral, renewing questions about the Japanese conglomerate’s massive debt pile. SoftBank said the money will come from 16 financial institutions and pledged as much as 953 million shares of SoftBank Corp.

SoftBank had 19.25 trillion yen of interest-bearing debt as of Dec. 31, a 23% increase since the start of the fiscal year in April. Sprint’s imminent merger with T-Mobile will lighten the load by about 4.9 trillion yen. Still, SoftBank may find it a challenge to balance shareholder returns with big-ticket investments in technology companies. The company had 3.8 trillion yen of cash and equivalents, while more than 2.6 trillion yen of bonds are coming due in the next three years.

“Son is sending a message that the stock in cheap,” said Mitsushige Akino, an executive officer at Ichiyoshi Asset Management Co. Considering how much the overall market has plunged, “you could say that investors have received Son’s signal.”