March 23, 2020 / 1:45 PM / 15 days ago

Breakingviews - Masayoshi Son’s bold streak works in reverse too

SoftBank Group Corp Chairman and CEO Masayoshi Son speaks during the Wall Street Journal CEO Conference in Tokyo, Japan May 15, 2018.

HONG KONG (Reuters Breakingviews) - It’s time to go big or go home. That is as much true for companies as it is central banks and governments confronting the economic realities of the coronavirus. And if there is any corporate chieftain who embodies such an approach it is SoftBank Group boss Masayoshi Son. His new plan to sell a gigantic slug of assets to fund a buyback and more shows a willingness to be bold in bad times as well as good.

The sprawling tech and telecom conglomerate said on Monday it would offload as much as $41 billion of assets. It didn’t specify which ones, but a stake in Chinese e-commerce giant Alibaba worth more than $120 billion is a readily available well that can be tapped. Japanese telecom operator SoftBank Corp is another. In the current environment, it might prove tougher to line up buyers for unlisted investments, such as microchip designer Arm, last valued by SoftBank at about $25 billion.

A combination of forces put pressure on SoftBank, which nearly went bust two decades ago during the dot-com crash. First, hedge fund firm Elliott Management started agitating for change at least six weeks ago. Second, investors spooked by the pandemic are naturally more worried about an opaque company with multiple layers of debt that famously inflated valuations during recent years of tech exuberance.

For SoftBank, the concerns were in plain sight. Its stock has plummeted by half in a month. That was a far bigger drop than its biggest public investments suffered. Alibaba shares were down by about a fifth over the same span and SoftBank Corp’s just 2%. The net result was SoftBank Group trading at a staggering 73% discount to its so-called intrinsic value, based on the company’s own estimates for holdings, including ones in the $100 billion Vision Fund such as WeWork.

Son swiftly recognised the fear-driven disparity and acted accordingly. The new $18 billion stock repurchase plan, along with an earlier $4.5 billion one, would retire 45% of SoftBank’s equity, based on current prices. The rest of the proceeds from intended asset sales are earmarked to pay down debt and rebuild cash reserves. The moves may not completely shore up the company’s balance sheet, but it should at least be somewhat reassuring that SoftBank’s swashbuckling chief executive is willing to throw his big levers into reverse.

Breakingviews

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