The wild swings in SoftBank and Masayoshi Son’s fortunes are back in spotlight in the wake of activist investor Elliott Management’s move to force SoftBank a fresh share buyback. Elliott has built a stake of USD2 billion in SoftBank.
In 2020, when SoftBank Vision Fund was in doldrums and the pandemic struck, Elliott, which had then built a USD2.5 billion position, made a similar move. It took full credit when Son eventually initiated a buyback.
SoftBank launched a larger buyback the following year to prop up its share price amid investor concerns over its steep losses and exposure to shambolic Chinese market. If it was the high volatility around Vision Fund that triggered Elliott’s buyback push last time, the activist investor is now asking SoftBank to close the gap between its USD90 billion market cap and USD180 billion net asset value through a similar exercise.
The broad consensus is that Son is much less under pressure, compared to the situation four years ago, as things are looking up at both Vision Fund investments and SoftBank’s direct holdings. The net asset value is at a historic high.
Son’s ark
What is striking here is Son’s possession of a magic bullet each time he is in a crunch situation. One multidecadal bet that Son took would become his bulwark against the vagaries of the capital market. It was the family silver, the Alibaba stake, that helped SoftBank protect its share price through the tech meltdown. He sold or pledged a large portion of the Alibaba shares to repurchase SoftBank stocks.
The tech and telecom conglomerate has now emerged from a long trough, credits to Arm’s blockbuster IPO last September. The UK chip designer is making the most of the AI wave, and its market cap has skyrocketed to USD164 billion.
SoftBank holds 90% of Arm Holdings Plc. Arm has replaced Alibaba as Son’s new ark that would keep him above a potential debt deluge.
Also, both these outcomes underscored a certain farsightedness behind his maverick actions, which was less understood at that time.
In its characteristic topsy-turviness, from the highs of USD200 billion, SoftBank’s market cap crashed to USD1 billion in the dotcom bust of 2000. Son practically lost all of his personal fortune of USD70 billion. But it was in the same period that he wrote a USD20 million check in the one-year-old Chinese e-commerce firm Alibaba.
Alibaba’s rapid ascent played a significant role in Son’s resurrection post the dotcom crash. As of last year, SoftBank’s USD54 million investment in Alibaba yielded a gain of USD72 billion.
The AI decision
SoftBank’s stupendous ride with Alibaba is in its last phase, and Arm forms the core of its asset base now. Some would say the lady luck is smiling on Son again in his turbulent ride. But Arm’s staggering rise represents the success of a pivotal decision he took in 2015-16. Son decided that SoftBank’s balance sheet would make AI infrastructure bets, and a mega fund managed by the firm would invest in AI consumer use cases.
In July 2016, SoftBank acquired and took private Arm Holdings. In less than a year, it launched SoftBank Vision Fund, the USD100 billion fund backed by Public Investment Fund of Saudi Arabia. Vision Fund went on to power 470 companies across the globe including Nvidia, Uber, ByteDance, Flipkart, Swiggy, Ola Electric, Paytm, Coupang, Slack, DoorDash, and Grab.
After the first three years of frenetic deal making, Son’s ambitious Vision Fund – the biggest ever private fund with a mammoth combined corpus of USD140 billion – looked tottering. Critics described his investment style as reckless capital dumping.
Direct holdings of SoftBank, its varied businesses, and Vision Fund constitute SoftBank’s revenue pool. When easy money fueled a capital market boom, its profits soared to USD32 billion in March 2021. It slumped to losses then. But it reported over USD2 billion profits in the last quarter.
“Masa always says ‘I can change direction any time’,” a Japanese executive who is a longtime close associate of SoftBank chief Masayoshi Son told this reporter four years ago during a casual conversation. “He can. Otherwise, he would have died many times. Many wrote him off, but he came back each time,” he added.
Son spots the big shifts. Be it Internet revolution or AI-driven transformation, he didn’t miss the big moment. After the Arm acquisition for USD32 billion in 2016, he said, “I always make investments at the beginning of a paradigm shift. You have to go to the front of the edge.” True that!
