SoftBank ready to reach deals as stocks peak in 20 years

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Two months since Masayoshi Son hinted that he was misunderstood like Jesus Christ, the billionaire founder of SoftBank in Japan has achieved at least one miracle: resuscitating its share price.

The shares in the technological conglomerate listed in Tokyo have increased by 143% in value since the bottom of the panic in mid-March.

They are now reaching a 20-year high, while some of the most prominent investments in its $ 100 billion Vision Fund, such as Uber and Slack, have seen their share prices double over the same period.

After selling assets and reviewing its investments with bankers, including Arm, the $ 32 billion chip designer, SoftBank is ready for a new round of transactions.

“There are incredible investment opportunities opening up for companies that are sitting on enough dry powder to take advantage of them,” said Marcelo Claure, one of Mr. Son’s trusted lieutenants, in an interview at Zoom in Aspen, Colorado. “We are much more careful. . . but it’s much better to be in the position we are in today. “

Claure, who joined SoftBank in 2013 after acquiring the telecommunications group Brightstar and is now its chief operating officer, added that SoftBank was “better positioned than ever” to enter into agreements.

“I don’t think there has ever been a SoftBank stronger than the SoftBank that we have today in the history of SoftBank,” he said.

If a new wave of negotiations looms on the horizon, the Bolivian-American executive has struggled to explain all the self-care that SoftBank has undergone in recent months to put Mr. Son in this position.

In particular, he stressed the importance of concluding in April a difficult merger between Sprint, the American mobile operator controlled by SoftBank, and its biggest rival T-Mobile during the third attempt.

Last month, SoftBank, which had struggled for years with Sprint’s heavy debts and fortunes, reached a restrictive blocking agreement to raise $ 23.2 billion from the sale of part of its stake in the resulting company. of regrouping.

After having also sold its stakes in Alibaba, the Chinese e-commerce group and its Japanese telecommunications company, SoftBank is 90% raising the $ 41 billion it has promised to spend on buyouts and reduce its debt .

The divestiture program, announced in mid-March, followed a harrowing weekend in which the fall in SoftBank stock and bond prices allowed Mr. Son to determine whether he should try to take the private group.

“The crisis gives you the opportunity to act decisively, act boldly and act differently. We were in the middle of the financial crisis and the pandemic, with a huge amount of unknowns, ”said Claure.

“If you look at the history of SoftBank, traditionally we have been buyers, we have been investors. We have almost never been sellers. . . We have made the very bold decision to monetize some of our assets. ”

The measures appear to have largely contributed to restoring investor confidence. SoftBank’s market value climbed to $ 128 billion, from a low of $ 51 billion on March 19.

The price of a $ 2.75 billion perpetual bond – which poses higher risk to investors because SoftBank never has to repay it – rebounded to 93 cents on the dollar, after plunging to 67 cents in March.

Line graph of 6% coupon, perpetual bond (cents per $) showing SoftBanks debt rebounds

Oliver Matthews, CLSA brokerage analyst, said that share price gains – driven in part by Alibaba’s shares reaching unprecedented heights – have reduced the discount between a sum of the valuation of the coins held by SoftBank and its equity valuation of around 75% to 40 percent.

“The stock has gone from very cheap to cheap, but investors have yet to assess asset sales, share buybacks and debt reduction,” he said.

Mr. Claure’s attention shifted to Arm Holdings, which Mr. Son once said was at the center of his vision of an era where machines and humans are interacting more and more closely.

But last week, SoftBank said it had removed an Internet of Things business from Arm and transferred it to a new company under its control. Its property will be divided like that of Arm, SoftBank controlling 75% of the activities and the rest being held by Vision Fund.

The move robbed Arm of what was supposed to be the high-growth engine that would propel it into a 5G connected future. But Mr. Claure argued that the IoT activity was a costly distraction that weighed on Arm’s financial results and would be best served under separate management.

Column chart of operating profit ($ billions) showing SoftBank's falling profits

After the split, he said that Arm would be more focused on its core business, chip design, and on the right track for a first public offering which will take place in the coming years. “When it’s time to go public, that’s when we would have realized most of the value. It is fair to say that I do not see Arm as a public company in the next 12 months. ”

A person familiar with SoftBank’s decision-making said it had also hired Goldman Sachs to assess all options for Arm, including a potential full or partial sale after receiving expressions of interest. The review was first reported by the Wall Street Journal on Monday.

The fortune of the Vision Fund also benefited from the upturn in American share prices for companies with a technological vocation and the reopening of the American market for the first public offerings.

After a successful market launch this month, SoftBank’s $ 300 million investment in home insurance start-up Lemonade is worth more than $ 1 billion. Other companies in its Vision Fund portfolio are considering an IPO, including DoorDash, the loss-making American food delivery start-up and oncology drug developer Relay Therapeutics.

But Mr. Claure admitted that there had been mistakes. He was part of a small group of SoftBank executives who invested last year alongside Abu Dhabi’s Mubadala in a convertible bond of 900 million euros in Wirecard, in a vote of confidence in the payment company German even when she was faced with questions about her accounting.

Wirecard collapsed last month after admitting a hole of 1.9 billion euros in its balance sheet, wiping out hundreds of millions of dollars in paper profits for SoftBank and Mubadala executives.

The sour transaction raised questions about SoftBank’s due diligence and the risks to its reputation for the decision to partner with a company facing allegations of accounting fraud.

“I can assure you that each time the transaction was concluded with Wirecard, we did not have a clue,” said Mr. Claure, adding that they trusted the audit opinion of EY when of investment. “We thought the company was right. And unfortunately, it has not followed the right path. ”

He added that arguably the company’s biggest mistake, sinking more than $ 10 billion into the office-sharing group WeWork, was turning around and his team would have accomplished the “mission impossible” by making the cash flow positive next year.

“I think the beauty of SoftBank and this management team is that we can learn from our lessons. We will be better the next time we do it, ”said Claure. “Sometimes things work the way you want and sometimes these things don’t work. A big problem is to learn from these mistakes and make sure we never do them again. ”

Additional reporting by Robert Smith

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