SoftBank is mulling going private (again) by buying back shares
One advantage of such a ‘slow-burn’ buyout, is that it gives SoftBank flexibility to purchase its own stock when it dips
Tokyo — SoftBank Group is debating a new strategy to go private by gradually buying back outstanding shares until founder Masayoshi Son has a big enough stake that he can squeeze out the remaining investors, according to people familiar with the matter.
The approach would probably take more than a year and would mean the Japanese company continues to sell assets to fund successive buybacks, the people said, asking not to be identified because the plan is private. Son wouldn’t buy more shares himself, but his ownership stake, now about 27%, would increase as other investors sell stock. Under Japanese regulations, Son could compel other shareholders to sell when he gets to 66% ownership, perhaps without paying a premium, the people said.
One advantage of the plan, which insiders have called a “slow-motion” or “slow-burn” buyout, is that it gives SoftBank flexibility to purchase its own stock when it dips, according to the people. In the case of a formal buyout, it would have to pay a premium, likely of around 25%. Shareholders are also likely to support buybacks, especially since the company continues to trade at a discount to the total value of its holdings in companies from Alibaba Group Holding and Uber Technologies to DoorDash.
The billionaire said as recently as February he thought SoftBank was better off as a public company. More recently, he has declined to comment on his plans after reports about a possible buyout in publications, including Bloomberg News.
“If our shares drop down, I will buy back more shares more aggressively,” Son said at a conference in November. SoftBank declined to comment for this story. Shares rose 5.6% on Wednesday in Tokyo after Bloomberg’s report, hitting a fresh 20-year high at ¥7,489.
Some analysts are sceptical that Son would pursue a buyout now given such challenges — and his propensity to use any cash he has for ambitious deals
Son has debated the idea of going private off and on for at least five years. When SoftBank’s shares tumbled in March with the coronavirus pandemic, he began conversations with advisers and lenders, including Elliott Management and Abu Dhabi sovereign wealth fund Mubadala Investment.
Even with SoftBank’s market capitalisation at about $50bn and its assets worth three times that, banks proved hard to convince. They offered unfavourable terms, torpedoing the talks, a person involved in the negotiations has said.
Instead, Son unveiled plans to sell about $43bn in assets to pay down debt and buy back stock. By June, he had offloaded $13.7bn of Alibaba stock, an even larger chunk of its stake in T-Mobile US and some shares of SoftBank Corporation, his Japanese telecoms unit. He then went even further, announcing the sale of Arm to Nvidia for about $40bn, slashing the stake in SoftBank Corporation by about a third and selling a controlling shareholding in phone-distribution company Brightstar.
Son says he is now sitting on $80bn in cash. The robust initial public offering (IPO) market has also given SoftBank some big gains on investments, including China’s KE Holdings and DoorDash.
SoftBank’s market value has surged, however, with a rally of more than 160% since its low in March. The value of the stock outside his control is about $87bn.
SoftBank is not obligated to publicly disclose buyout plans, unless it takes concrete steps such as setting up a special committee to review the bid or getting letters of intent from the banks for financing, according to one of the people. The disclosure rules in Japan, where management buyouts are rare, have grey areas that would give SoftBank room to manoeuvre, the person said.
Son may still do a traditional management buyout if the share price falls below a certain level, one of the people said, declining to give specific numbers. Elliott, SoftBank’s biggest external shareholder, would take part, provided the stock is still trading at a discount to its underlying value, according to a different person. The Japanese conglomerate is also less leveraged today and a much easier vehicle to lend to for the banks than it was in March, the person said.
After repurchasing ¥1.35-trillion of shares this year, SoftBank holds about 12% of outstanding stock. Son controls about 26.8% through various entities. The company has already announced plans to buy back ¥1.5-trillion more up to end-July 2021. At its most recent closing price, that would increase Son’s share to less than 35%, a long way to go until a decisive majority.
Some analysts are sceptical that Son would pursue a buyout now given such challenges — and his propensity to use any cash he has for ambitious deals.
“Until this year, Son has shown little appetite for tackling the discount with buybacks,” said Atul Goyal, senior analyst at Jefferies. “Are we supposed to believe that he will now spend years and all of SoftBank’s cash on this scheme, instead of doing what he really loves — making big bets in the tech space?”
The problem with a slow-burn MBO strategy is that the buybacks are likely to raise the cost of the eventual deal, according to Goyal. Even if Son manages to raise his personal stake in the company to 66%, Goyal is not convinced he will be able to pull off the buyout without a challenge from minority shareholders.
Many inside SoftBank are also against the idea of going private. The sheer amount of cash required is one obstacle. Going private is also likely to cause blowback from credit-rating agencies, making the refinancing of billions of dollars in corporate bonds more difficult, one person said. A buyout would actually prevent Son from doing big deals for as long as a year and a half, one factor giving him second thoughts, a different person said.
In February, when he addressed the idea of a buyout, Son said he decided against pursuing a deal after giving it serious consideration. Keeping SoftBank public would allow shareholders to participate in the company’s growth and enforce management discipline, including transparency, he said at the time.
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