SoftBank Seeks to Close Valuation Gap With Share Buyback

(Bloomberg) -- SoftBank Group Corp. is buying back as much as 600 billion yen ($5.5 billion) of stock, as founder Masayoshi Son steps up efforts to close the disparity between what he thinks the company is worth and its market value.

Proceeds from the 2.4 trillion yen initial public offering of its telecommunications business in December will be used to fund the repurchase, the Tokyo-based company said Wednesday. It's the biggest-ever buyback in SoftBank's history, and the shares rose in late trading.

Son, who is remaking the company into a technology investor from a telecoms operator, has long-argued its share price doesn't reflect its business and investments. He spent much of his presentation explaining that SoftBank's holdings are worth 21 trillion yen net of debt, while the market value is 9 trillion yen. The gap is even laid out on its website, which shows the stock trading at a 59 percent discount to a sum-of-the-parts calculation that includes the telecoms unit, Alibaba Group Holding Ltd., U.S. carrier Sprint Corp. and Yahoo Japan Corp.

“What is that gap all about? Isn't that weird?” Son said at the briefing. “I personally think the share price is too low.”

SoftBank has had success with buybacks in the past. In 2016, Son announced his company would buy as much as 500 billion yen, which sent shares up by the limit the next day. The stock price doubled over the next year.

Of the total raised from the telecom unit's IPO, 700 billion yen will go toward debt repayment, 700 billion yen for investments and 600 billion yen for the buyback, Son said, without saying what the rest was for.

The listing of the domestic telco operations and the pending sale of Sprint were part of a plan to focus more on the $100 billion Vision Fund. The company's portfolio includes the world's biggest ride-hailing company Uber Technologies Inc. and co-working giant WeWork Cos. Thanks to valuation gains, profits from the Vision Fund and SoftBank's own Delta Fund more than tripled to 176 billion yen.

“The share repurchase fits perfectly with the goal of boosting the company's valuation,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management. “There will be a positive reaction to the amount of the buyback.”

SoftBank Group shares jumped as much as 7.3 percent in after-hours trading on SBI Japannext Co.'s platform. Volume was low, with just about 17,000 shares trading hands, worth about 151 million yen. The stock closed at 8,462 yen before the results, compared with SoftBank's calculated shareholder value of 20,446 yen. The American depositary receipts jumped 7.7 percent to $42.50 in New York.

The Vision Fund sold all of its shares in U.S. graphics chipmaker Nvidia Corp. in January, worth 398 billion yen, SoftBank said. News of the share sale first emerged in December, when people with knowledge of the matter said it was likely. For the three quarters preceding the sale, SoftBank booked a net loss of 50 billion yen on the stake.

The share repurchase period will start Thursday and last through the end of January next year, and the stock will be retired. SoftBank Group's operating income rose 60 percent to 438 billion yen in the last three months of 2018. Revenue rose about 5 percent. The company didn't give full-year earnings forecasts.

“The results were very good,” Fujiwara said. “The operating business is doing well, and the Vision Fund adds to that.”

Telecom unit SoftBank Corp. yesterday reported a 24 percent increase in profit during the quarter, despite a mobile service outage that hit millions of customers before its initial public offering in December. The company kept its outlook for net income to climb 4.8 percent to 420 billion yen in the fiscal year ending in March.

The company is also readying a new fund focused on Latin America that will be run by Chief Operating Officer Marcelo Claure, people familiar with the matter said last week. The fund, still in a nascent state of development, could reach several billion dollars in size and is separate from the Vision Fund, according to one of the people.

Whether SoftBank embarks on another buyback might depend on how long Son, 61, plans to be in the job. Asked about his plans for retirement, Son said he'll remain CEO until 69, and then stay around as chairman for a while longer.

--With assistance from Yuji Nakamura and Yuki Furukawa.

To contact the reporter on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Reed Stevenson, Peter Elstrom

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