MASAYOSHI Son's SoftBank Group is worth significantly less than the sum of its parts. For an activist investor with plenty of cash and the stomach for a fight, it could be the trade of a lifetime.
Mr Son's US$82 billion tech-to-telecom conglomerate ticks the boxes for pushy shareholders like Dan Loeb's Third Point Management or Paul Singer's Elliott Management. There's poor governance - Mr Son is both chief executive and chairman and makes investments in cash-burning companies like WeWork partly based on his ability to "feel the force".
Performance is weak too. SoftBank shares have returned minus 15 per cent over the past six months, including dividends.
The result is that Mr Son's company trades at a huge discount to its theoretical asset value. It owns Alibaba shares worth US$136 billion. Chipmaker ARM's value is probably US$22 billion, using the price before Mr Son bought it in 2016. Listed stakes in SoftBank's eponymous Japanese telecom unit and US operator Sprint are worth US$19 billion and US$43 billion respectively. Finally, SoftBank touts US$36 billion of mostly private holdings, including its share in the Saudi-backed Vision Fund.
Add everything up, deduct debt, and SoftBank's equity should be worth US$215 billion - 161 per cent more than its current market value.
An activist-led breakup would help close the gap. SoftBank could start by handing ARM, Sprint and the Alibaba stake to shareholders. The latter could admittedly be tricky. As Yahoo discovered, it's hard to realise the value of shares in the Chinese e-commerce giant without triggering a massive tax bill.
Still, the potential rewards outweigh the costs.
Mr Son's 22 per cent stake, based on information on the company's website, is a big obstacle to forcing change. Major corporate decisions at SoftBank require the support of two-thirds of shareholders. If, say, three-quarters of them turn up to vote, Mr Son only needs the support of investors representing 3 per cent of the company to veto a motion. To overcome that hurdle, an activist would either need to acquire a huge stake or rely on widespread support from fellow shareholders.
A protagonist would not be short of potential allies, though. Investors including Capital Group and Tiger Global Management privately criticised SoftBank's Vision Fund losses and governance, the Wall Street Journal reported. In 2020, an activist could tap into that dissatisfaction to make a killing. REUTERS