(pictured) will head to New York next month for the first time since the implosion of WeWork, seeking to persuade hedge funds and institutional investors that the fortunes of SoftBank Group have turned since the disastrous investment.
The Japanese billionaire is scheduled to address investors on March 2. There, he could point to the approved sale of Sprint, a rally in Uber Technologies shares and Elliott Management’s purchase of SoftBank stock as signs of progress at his company, said people familiar with the plans. It’s unclear where WeWork
will fit into the agenda.
Within SoftBank, there’s disagreement about how to convey the company’s strategy. Son, 62, is known for his eccentric financial presentations, which have included a “hypothetical illustration” of WeWork
profitability and stock photos of ocean waves and calm waters. One memorable slide from 2014 contained only a drawing of a goose and the words: “SoftBank = Goose.” Many staff at headquarters in Tokyo love the founder’s showmanship, but some senior executives are exasperated and argue a clearer and more sober message is needed, said people familiar with internal discussions.
Ultimately, Son will decide. He has downplayed any pressure from Elliott, a New York-based activist investor that disclosed a nearly $3 billion stake in SoftBank this month. Son called Elliott an “important partner” and said he’s in broad agreement with the investor’s arguments for buybacks and increasing the stock price. Son has signaled less receptiveness to Elliott’s other suggestions: selling more of the stake in Alibaba Group Holding and reining in the Vision Fund, a $100 billion investment vehicle that accounted for more than $10 billion of losses in the past two quarters.
In private meetings with SoftBank, Elliott raised issues over the clarity of SoftBank’s strategy, people familiar with the talks said.
SoftBank is planning to make hires within its investor relations department to help shape the message to shareholders. SoftBank declined to comment. A spokesperson for Elliott declined to comment.
“Right now, serious heat is being applied on Son,” said Justin Tang, head of Asian research at United First Partners in Singapore. “Son has to be seen actually doing something.”T-Mobile, Sprint agree to new terms
Son’s heading into the meeting with one win under his belt: T-Mobile US and Sprint have agreed to new terms for their pending merger, a key step toward completing a transaction that will unload the loss-making carrier and unlock new capital for SoftBank.
Although next month’s event was scheduled before Elliott disclosed its stake and is not designed to specifically address the activist investor’s involvement, it will be a focus for attendees, said people familiar with the preparations. Executives are bracing for questions about Elliott’s intentions and how far the shareholder will go to boost the stock’s value.
Goldman Sachs Group is organising the March event, the people said. The firm, which helped Japan’s Sony and Toshiba in their dealings with activist investors, is vying for the job of advising SoftBank on Elliott, said a different person said.
However, SoftBank is likely to manage the relationship in-house, another person said. The job may fall to Marcelo Claure, the chief operating officer who’s helping oversee the WeWork
debacle; Katsunori Sago, the chief strategy officer and a former Goldman Sachs executive; or Ron Fisher, a director and trusted adviser to Son. A Goldman representative declined to comment on SoftBank.
Dogs and pizza
SoftBank is recovering from a series of stumbles in recent months. WeWork’s plan to go public last year imploded, forcing SoftBank to arrange a rescue financing of $9.5 billion in October. Uber, despite a two-month surge, is still trading about 10 per cent below last year’s offering price. The Vision Fund has suffered other high-profile setbacks, including investments in failed online retailer Brandless, dog-walking app Wag Labs and pizza robot company Zume Pizza.
Elliott has said it took the stake in SoftBank because the firm’s shares are woefully undervalued compared with its assets. SoftBank’s own sum-of-parts calculation puts its total value at 12,300 yen a share ($111). That’s more than double SoftBank’s actual share price, which values the company at about $104 billion. Elliott has pegged SoftBank’s net asset value at about $230 billion, people familiar with the discussions have said.
The disconnect between what SoftBank and Elliott say the company is worth and the market value can be explained by several quirks of how the business is run, according to a report from Pierre Ferragu, an analyst at New Street Research. Many shareholders would like the company to return more capital and improve its governance, he wrote. Risks associated with the Vision Fund and a lack of details about tax liabilities associated with cashing out its investments are other factors.
SoftBank recognised the need for more oversight as early as 2018, when it charged Claure with a broad review of operations across SoftBank companies.
Claure, the former head of Sprint, spent months assembling a team of about 40 executives. In the end, he was forced to cede control of the so-called SoftBank Operating Group to the man it was supposed to be overseeing: Rajeev Misra, the head of the Vision Fund.
Elliott wants SoftBank to set up a special committee to review investment processes at the Vision Fund. Elliott argues the fund has dragged down the share price despite making up a small portion of assets under management, said people familiar with the discussions.
Some at SoftBank are resistant to the idea of an oversight committee. Instead, SoftBank is seeking to resolve issues at the Vision Fund with new governance standards for the companies
it invests in. The new rules will encompass how the fund approaches the composition of the board of directors, founder and management rights, rights of shareholders, and mitigation of conflicts of interest. Son has conceded that missteps with the original fund is making it difficult to raise money for a successor. He has said SoftBank may need to invest in start-ups using its own capital for a year or two.
Elliott is also calling for a buyback of as much as $20 billion. A repurchase of that scale could boost SoftBank’s shares by 40 per cent, Ferragu estimated. SoftBank’s last share repurchase was announced about a year ago, a record 600 billion yen. It sparked a rally that pushed the stock to its highest price in about two decades. SoftBank said on Wednesday it plans to borrow as much as $4.5 billion against shares of its Japanese telecom unit. SoftBank’s debt load exceeds $120 billion. Son’s reliance on debt is raising alarms, said Tang. “He’s going to get wiped out if there is some black swan event,” Tang said. “SoftBank needs to de-leverage, and the best way to do it is to sell the Alibaba stake.”
Son, who often goes by the nickname Masa, controls more than a quarter of SoftBank stock through various vehicles, and the company bylaws require two-thirds of votes to pass any proposal made through the board, according to a person with knowledge of the rules. “Unless everyone is against him,” said Tang, “it’s not possible to dislodge Masa.”