SoftBank Group chair and CEO Masayoshi Son. Picture: REUTERS/ISSEI KATO
SoftBank Group chair and CEO Masayoshi Son. Picture: REUTERS/ISSEI KATO

Tokyo — Inside SoftBank Group, the idea of going private through a buyout has been discussed off and on for at least five years. Almost everyone except founder Masayoshi Son opposes it, people with direct knowledge of the matter said.

The reasons are substantial: no-one has pulled off a buyout anywhere close to SoftBank’s $134bn valuation. It’s not clear the company could raise the necessary financing, and such a complex deal would prove a distraction for at least a year, the people said. Senior managers also worry that without public shareholders, it would be harder to keep Son’s wildest impulses in check, one person said.

That does not mean a deal is out of the question. The Japanese conglomerate considered buying out shareholders and retreating from the public market again in 2020, the people said. Son has been frustrated that SoftBank’s market capitalisation continues to fall far short of the value of his holdings, particularly Alibaba Group.

Preliminary work on a buyout got under way after a record drop in SoftBank shares in March, but the effort was later tabled as the stock price more than doubled with asset sales, buybacks and media reports about a possible deal, one person said. One theory at SoftBank is that whenever Son gets too serious about the idea, executives leak to the media, so the share price rises and a buyout becomes less compelling.

Asked whether there were factions within SoftBank with different opinions about a buyout, one insider laughed and said there’s no group in favour. “Only Masa,” the person said. “Everyone else thinks it’s a bad idea or just a needless distraction. But he makes the decisions.”

SoftBank declined to comment for this story.

Son’s urge to go private dates back to the initial public offering (IPO) of Alibaba in late 2014. While SoftBank had a few valuable assets before then, the Chinese e-commerce pioneer’s debut quickly gave him a slug of publicly traded shares worth more than his entire company. In November of that year, with SoftBank’s market cap at $82bn and his stake in Alibaba alone worth $87bn, the proud entrepreneur openly questioned why investors would not pay more for his company’s shares.

‘Goose with golden eggs’

“SoftBank is a goose with more golden eggs in its belly,” Son said at a briefing in Tokyo. “SoftBank is currently valued less than the sum of its golden eggs.”

The next year, Son came close to pulling the trigger. He held talks with an overseas partner about a management buyout before scrapping the idea because they could not agree on financing conditions, Bloomberg News reported at the time.

One advocate for the deal in 2015 was Rajeev Misra, a former Deutsche Bank executive with a penchant for complex transactions who had joined SoftBank the year before, according to a person familiar with the matter. As a banker, Misra had helped Son pull off the acquisition of Vodafone’s Japanese wireless operations in Asia’s largest-ever leveraged buyout and thought a SoftBank buyout was feasible, the person said.

After the buyout talks broke down, Son poured money into other initiatives. SoftBank agreed to purchase chip designer Arm in 2016 for $32bn. He then committed at least $25bn of SoftBank money to the Vision Fund, the technology investment effort Misra now leads. Son had no excess capital as he embarked on an unprecedented spree of backing start-ups, including Uber Technologies and the now-infamous WeWork. ​

​But after SoftBank shares tumbled in March with the coronavirus pandemic, Son returned to the idea of a buyout. He began conversations with advisers and lenders, according to the people. Activist investor Elliott Management and Abu Dhabi sovereign wealth fund Mubadala Investment also took part, according to a person involved in the negotiations. With SoftBank’s market value dropping to about $50bn and its assets worth three times that, the potential to make money was compelling.

But banks proved hard to convince. They offered unfavourable terms and wanted SoftBank to dump much of its Alibaba stock, torpedoing the talks, a person involved in the negotiations said. Elliott and Mubadala declined to comment.

Ultimately, Son opted for a simpler path to boost his shares. He agreed to sell about $43bn in assets to finance an unprecedented series of buybacks and debt repayments.

Son’s disposals have gone well beyond the original agenda, uncharacteristic for a man long reluctant to sell prized assets. By June, Son had offloaded $13.7bn of Alibaba stock, an even larger chunk of its stake in T-Mobile US and some shares of SoftBank, his Japanese telecommunications unit. He then announced the sale of Arm to Nvidia for about $40bn, slashed the stake in SoftBank by about a third, and sold a controlling shareholding in phone-distribution company Brightstar.

Son has never sat on that kind of capital in his career without attempting an ambitious deal.

“Everything Son is doing suggests that they are planning to take the company private,” Bloomberg Intelligence senior analyst Anthea Lai said. “But there is a dilemma — all of his actions are also boosting the share price.”

The seemingly impossible logistics may not deter Son and Misra. The Japanese billionaire has done several record-sized deals before, including the Vodafone leveraged buyout and the Arm acquisition. Pulling off the largest management buyout in history may actually appeal to Son as he heads into the last years of his career, one person said.

Paying a premium

Son’s lieutenants understand how daunting it would be, the people said. He would have to pay a premium to SoftBank’s market value, which a person familiar with the matter said would likely be 20%-25%. Even at the low end of the range, the buyout would reach $100bn, not counting the roughly 36% of outstanding shares controlled by Son and SoftBank.

“The capital they would need to buy out minority investors is massive,” said Kirk Boodry, an analyst at Redex Research in Tokyo.

Convincing Japanese banks to change their minds and finance the deal would be a tall order. SoftBank is already the country’s second-biggest debtor after Toyota Motor, excluding financial firms, and it would probably need another $80bn in financing for a buyout, a person familiar with the matter said. Lenders were already wary of their exposure to the company in December, Bloomberg News reported at the time.

Son may be able to persuade banks if he is willing to part with a big chunk of Alibaba stock — perhaps one-third of the stake worth more than $140bn as of August. But Son is reluctant to sell because he believes the e-commerce company is destined to become a trillion-dollar firm, according to one of the people. Alibaba has quadrupled in value since its 2014 IPO to about $788bn.

Going private is likely to cause blowback from credit-rating agencies, making the refinancing of billions of dollars in corporate bonds more difficult, one person said. It may also trigger change-of-control clauses for some of SoftBank’s overseas notes, which could force the company to repay several billion dollars worth of debt, the person said.

In the end, it is unclear what benefit Son would get from going private, another person said. He can already do almost anything he wants at the company, where he is the sole founder, chair,  CEO and the largest shareholder. A buyout would actually prevent him from doing big deals for as long as a year and a half, one factor giving him second thoughts, a different person said.

“It could be that SoftBank sees a market crash coming,” Redex Research’s Boodry said. “If you had another collapse, they would be well positioned to take advantage of it.”

Bloomberg

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