SoftBank will buy back ¥500bn ($4.8bn) of its own shares following demands from activist fund Elliott Management to close a widening gap between the value of the technology conglomerate and its investments.
The announcement on Friday to buy back as much as 7 per cent of its stock came as markets plunged due to fears over the economic fallout of the coronavirus outbreak. The pandemic is expected to hit SoftBank’s investments in ride-hailing and hotel groups.
The buyback, which will last for a year from Monday, follows a 20 per cent decline in the group’s share price this year. SoftBank profits collapsed by 99 per cent in the most recent quarter after bets on WeWork and other investments made by its $100bn Vision Fund soured.
A year ago the company launched a record $5.5bn buyback that sparked a rally in its shares. But the latest announcement failed to lift investor sentiment as shares fell as much as 9.6 per cent, in line with a broader Japan market sell-off.
Masayoshi Son, the billionaire SoftBank founder, had hinted at a share buyback at an earnings presentation last month, adding his interests were “basically aligned” with other shareholders given his 25 per cent stake in the group.
Both Mr Son and Elliott argue that SoftBank’s $73bn market capitalisation does not reflect the value of its investment portfolio, which includes majority stakes in US telecoms group Sprint and UK chip designer Arm. It also holds a lucrative stake in Chinese ecommerce group Alibaba.
Elliott, a $40bn US activist fund, has recently built a $2.5bn stake in SoftBank. It has demanded a $20bn share buyback, greater transparency for the Saudi Arabia-backed Vision Fund and governance changes.
Analysts had expected SoftBank to announce a share buyback regardless of Elliott’s campaign after legal hurdles were cleared for the merger between its US unit Sprint and T-Mobile. The deal would allow SoftBank to offload $38bn of Sprint debt from its balance sheet.
“The approximate size of the buyback and its timing is aligned with expectations, but the issue is that markets are in a freefall and people are in a general state of panic,” said Chris Lane, an analyst at Sanford C. Bernstein.
Investor concerns have focused on investments by SoftBank and the Vision Fund in Uber, China’s Didi and Grab in south-east Asia, as well Indian hotel chain Oyo. Such start-ups are likely to be hurt as the coronavirus restricts travel.
“Investors want to see improvements in the profitability of these investments, but this is going to be difficult to achieve until the coronavirus passes,” Mr Lane said.
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