SoftBank: Unpacking the massive Masa Son discount
One thing to start: CVC is set to re-enter professional sport with a £225m deal to acquire a minority stake in the parent company behind elite English rugby, providing a crucial capital injection to the cash-starved clubs of the game. Now back to the show . . .
Coming into this year, one major problem was nagging at Masayoshi Son, SoftBank founder and chairman, and his inner circle.
And no, it wasn’t his company’s cosy dependence on the man grinning on the right below. That issue came into focus later on. More on that in a bit.
Instead, SoftBank was frustrated with the enormous discount between the value of its holdings and the value of its shares. To start the year, senior lieutenants inside the company were dispatched around the world to explain the tech-to-telecoms conglomerate better to investors, analysts and others.
To put the discount into perspective, consider that SoftBank’s 28 per cent stake in China’s Alibaba, the ecommerce giant, is worth about $105bn before any tax paid on a hypothetical sale. Compare that with the company’s total equity market capitalisation of roughly $85bn.
You can understand the annoyance that must cause when the company’s holdings also include Arm, the UK chip designer for which it paid $32bn; a wholly owned mobile phone subsidiary in Japan; a majority stake in Sprint in the US; and a sundry of other assets. And that’s all before considering SoftBank is the manager of a near-$100bn investment fund for which it is entitled to management fees and carry.
To address the problem, SoftBank spent much of the year preparing a listing of its Japanese mobile phone unit. That’s set to take place this week, with the company expected to raise $23.5bn from the sale of just over a third of its stake.
To mark the listing, Lex has taken the opportunity to do a deep-dive analysis into SoftBank’s share price discount.
All told, Lex’s Jonathan Guthrie and Sujeet Indap valued SoftBank’s investments at a total of $235bn. That’s a 60 per cent discount to the its market value. One argument is that much of the difference is accounted for by SoftBank’s big debt obligations. Unfortunately, while debts would stay the same in any market rout, the value of SoftBank’s investments would tumble.
You can read the full piece and all of Lex’s analysis here. We’d like to think it’s a nice complement to the comprehensive coverage of SoftBank by the FT throughout the year.
As for the issues with Vision Fund II, we’ve already flagged up that the project is in trouble in the aftermath of the murder of journalist Jamal Khashoggi by agents allegedly from Saudi Arabia.
Last week, we reported that Masayoshi Son confronted Crown Prince Mohammed bin Salman in Riyadh during the “Davos in the Desert” conference, telling him that the Khashoggi crisis had put him in a difficult position, people briefed on the meeting said. The headstrong prince apologised.