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Maybe SoftBank’s Son Will Listen to Singer, If Not Sense

Tim Culpan

(Bloomberg Opinion) -- It may just take the likes of Paul Elliott Singer to make SoftBank Group Corp.’s Masayoshi Son adjust his approach.

Singer’s Elliott Management Corp. has taken a $2.5 billion stake in the Japanese company — that’s about 3% —  with a view to bend Son’s ear, the Wall Street Journal reported Thursday. Elliott confirmed to Bloomberg Opinion that it invested in SoftBank and has engaged privately with its management.

Elliott must truly believe in SoftBank. It must also believe SoftBank can do better and is talking with Son and his team to make that happen. 

At issue is how the stock market values the company, whose assets include a sizable chunk of the SoftBank Vision Fund, control of U.S. telecommunications company Sprint Corp., shares in its own SoftBank Corp. mobile telecom business and a large (albeit likely illiquid) stake in Chinese e-commerce giant Alibaba. 

According to SoftBank’s own reckoning, the stock is worth 12,259 yen per share, based on the equity value of its holdings less debt. Unfortunately, shares are trading at 4,727 yen. 

This 61% discount is a cause of great frustration to Son, who mentions it in almost every investor conference and tracks it daily on SoftBank’s website. Yet it’s a source of great potential to Elliott, if only it can find a way to unlock that hidden potential and close that valuation gap.

SoftBank and Son seem receptive to Elliott, according to the Journal.

“We are in complete agreement that our shares are deeply undervalued by public investors,” the Journal quoted SoftBank as saying in a statement. 

In reality, SoftBank’s shares aren’t undervalued. The problem is that investors are applying a conglomerate discount based on the way Son and his team are managing it. 

Among the moves Elliott is advocating are a share buyback and improved governance. After the Vision Fund’s ill-advised investment in WeWork — which later led to a SoftBank bailout and writedown — the latter seems like the least shareholders can expect from Son if they’re to give his company the credit he feels it’s due. 

A share buyback sounds nice but feels like putting a band-aid on a shark bite. That said, it’s well within SoftBank’s reach if it chose to monetize any of its holdings through share sales or borrowing against those stakes. And the mere hope of a 20% buyback would in itself lift the stock and help close that valuation gap.

In the end, what SoftBank needs isn’t a bandage but an infusion of managerial acumen. 

To contact the author of this story: Tim Culpan at tculpan1@bloomberg.net

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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