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SoftBank Shares Soar on Plans for Buyback of Up To $9 Billion

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·5 min read
SoftBank Shares Soar on Plans for Buyback of Up To $9 Billion
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(Bloomberg) -- SoftBank Group Corp. shares surged as much as 10% after the company said it would buy back as much as 1 trillion yen ($8.8 billion) of its own stock, reverting to a strategy that founder Masayoshi Son has used in the past to benefit investors.

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The Tokyo-based company made the announcement Monday as it reported financial results for the September quarter, saying it would repurchase up to 14.6% of its outstanding stock and retire the shares in a program that will run for a year. Son said that if the buyback isn’t completed in the next year, it could be extended.

Jefferies analyst Atul Goyal called the buyback “a welcome move.”

“Our analysis of buyback history indicates that SBG stock performs (and outperforms indices or BABA) during buybacks,” he wrote in a research report, referring to Alibaba Group Holding Ltd., one of SoftBank’s most important holdings. He raised his price target for SoftBank to 7,850 yen and estimated the net asset value of SoftBank’s holdings at 12,910 yen.

The 10% rise in early Tokyo trading was the biggest gain in two months.

The SoftBank founder is returning to a familiar strategy after a 2.5 trillion yen buyback program last year helped more than triple the company’s valuation from its pandemic low. But the company’s shares had slid more than 40% from their peak in mid-March after the repurchase program ran out.

Son had been asked repeatedly about reviving the buyback program, but had deferred because SoftBank prioritized other uses for its cash, including making investments in startups. Ultimately, he said the company’s directors agreed on the plan because SoftBank shares had sunk so far below the value of its assets, a discount he estimated at 52%.

“With a discount this wide, I thought, what would make shareholders happy? A buyback,” Son said at an investor presentation after the earnings announcement. “We had a heated discussion at the board meeting. We decided now is the time to buy back shares.”

Son also expressed confidence that SoftBank will be able to complete the sale of Arm Ltd. to Nvidia Corp., a deal many investors believe will never get the necessary regulatory approvals. He suggested the buybacks could be expanded if the sale is consumated.

SoftBank reported a record loss at its Vision Fund unit for the fiscal second quarter because of a decline in the value of public holdings, including China ride-hailing giant Didi Global Inc. and the Korean e-commerce giant Coupang Inc. The investment arm lost 825.1 billion yen, while the company overall reported a second-quarter net loss of 397.9 billion yen.

Son’s Vision Fund has been a volatile contributor of profit and loss since its creation in 2017. The unrealized loss on valuation of public companies totaled $17.7 billion in the latest quarter across SoftBank’s two Vision Funds. Coupang was responsible for $6.7 billion of the loss.

“What happened to us? We are in the middle of a blizzard,” Son said at the briefing in Tokyo, flashing a slide of snow-covered tundra. “The SoftBank Vision Fund performance is not something I’m proud of.”

SoftBank’s portfolio of Chinese startups was particularly hard-hit after the country’s regulators launched an offensive against technology giants. Didi, whose debut at the end of the previous quarter was one of the largest U.S. offerings of the past decade, lost $6.1 billion in the quarter and Uber-like trucking startup Full Truck Alliance Co. was down $1.2 billion.

KE Holdings Inc., which runs the Beike online property service, lost $2.2 billion of value. The little-known Chinese startup handed SoftBank an unrealized gain of $5.1 billion when it went public in August 2020, pushing up Vision Fund profit to a new record in that quarter. Even though the company has not been directly targeted by regulators, its stock is down more than 70% from its peak and is trading below the IPO price.

SoftBank has said it will proceed cautiously with investments in China, estimating that 20% of the Vision Fund investments will go into the region. The country has been the source of Son’s biggest successes, but the Beijing crackdown has raised concerns about the future.

Son has also considerably scaled down his controversial program of trading stocks and options, liquidating his entire stakes in Amazon.com Inc., Taiwan Semiconductor Manufacturing Co. and PayPal Holdings Inc. SoftBank held a total of $5 billion of “highly liquid listed stocks,” down from $13.6 billion at the end of the previous quarter.

Son said that he personally lost about 150 billion yen in SB Northstar, the unit for trading public stocks. The business is now winding down, he added.

Son faced questions about his personal investment in Northstar last year, with some pointing to potential corporate governance concerns. People familiar with the matter said in December that SoftBank had begun to wind the strategy down. Most of the large stakes in listed firms are now no longer listed on SoftBank’s earnings, while today’s filing indicated that many of the more controversial bets on derivatives were also being wrapped up.

The operation was a wash for SoftBank as a whole, Son said at the briefing in Tokyo, because his investments came later. He added the loss hasn’t dissuaded him from continuing to make bets with his money, including personal investments in Vision Fund 2 and in the firm’s Latin American funds.

“I have lots of confidence,” he said. “I’m going to take risk again.”

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