Son's Expensive Revenge

(Bloomberg Gadfly) -- Masayoshi Son's message to the board of Charter Communications Inc. seems swift and clear: "If you don't buy us, we'll buy you."

As chairman and CEO of SoftBank Group Corp., Son has been looking for someone to partner up with his unprofitable Sprint Corp. for so long that, as Gadfly's Tara Lachapelle pointed out, he's starting to look more desperate than we thought.

Charter was vehement in its rebuff of SoftBank and Sprint, with this scathing smack down emailed to Bloomberg News on Sunday.

We understand why it is attractive for SoftBank, but Charter has no interest in acquiring Sprint.

So now Son looks ready to take this unrequited love and turn it into a revenge purchase.

People familiar with the matter told Bloomberg News's Scott Moritz and Gerry Smith early Monday Tokyo time that Son, via SoftBank, is planning to make a direct offer for Charter sometime this week.

Assuming the deal makes sense and Son can make the case that there are synergies to be had, there come the prickly twin problems of price and funding.

Charter's current market cap is $100 billion. That's a sum familiar to SoftBank watchers because it's the amount Son is raising for his Vision Fund. Of course, he'd need to pay a lot more than that to win.

According to data compiled by Bloomberg, the 65 completed telecoms takeovers exceeding $1 billion over the past five years had a median market-cap premium of 59 percent. SoftBank itself paid a 43 percent premium when it ponied up $39 billion for Sprint back in 2013.

With less than $700 million in cash at the end of June, Charter has no funds for SoftBank to squeeze out of it. So where would Son come up with around $150 billion to buy yet another telecom company?

It would show a complete lack of vision for him to tap the Vision Fund. It's hard to imagine investors

Going to capital markets might not be the best idea, either. Within minutes of Bloomberg's story, SoftBank's stock sank as much as 2.2 percent in Tokyo. The prospect of selling shares to fund a deal would drive the price even lower, while SoftBank's market cap of $89 billion means a share swap would fall short. Bondholders don't appear to be any more on board, with SoftBank's U.S. dollar 6 percent perpetual notes slipping back to their lowest level in two weeks.

SoftBank's own $26 billion in cash is offset by more than $134 billion in non-current liabilities. That's left it with a total debt-to-Ebitda ratio of 5.67, more than double the median of its telecom peers. Any further debt raising would take SoftBank perilously close to unsustainable levels.

If Son goes through with this threat of a hostile bid for Charter, investors will soon learn how costly revenge can be.

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

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

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

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net.