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Masayoshi Son is cashing out, but he's forgetting something
MASAYOSHI Son is finally doing some spring cleaning, however there's a dusty corner he seems to be forgetting about.
It's no secret the founder of SoftBank Group Corp is a big spender. But the more he buys, the wider his so-called conglomerate discount becomes.
Right now, SoftBank's 29 per cent stake in Alibaba Group Holding is worth more than 80 per cent of the Japanese firm's market cap. According to sell-side analysts, SoftBank is trading at a 46 per cent discount to its fair value.
The problem, as I've said before, is that Mr Son doesn't have much of a history when it comes to selling stuff, even though many regard him as a tech visionary. What kind of venture capital fund is he running if he never exits?
Thanks to the arrival of some creative financial engineers from Deutsche Bank, his hoarding habits are starting to change.
SoftBank is looking to IPO its domestic telecom unit and is offering to pay bondholders who agree to a covenant change that would make it easier to list the cash cow. The business has been using its own cash flows to guarantee its parent's high-yield notes and the Tokyo Stock Exchange won't let it go public unless it can prove independence. Other assets are being monetised too, some of which were acquired as recently as January.
SoftBank is seeking to raise a US$5 billion dividend recapitalisation loan through its UK chip company ARM Holdings, according to Reuters. That's a nice way of saying taking on more debt to pay a special dividend to shareholders. When SoftBank bought ARM in 2016 in a US$32 billion deal, the British outfit had no debt and paid out only 36 per cent of earnings.
A similar sort of borrowing plan may also be under way for the 15 per cent stake SoftBank holds in Uber Technologies, tech news website The Information reported. While it's unclear whether Uber's management would allow this, SoftBank's outsized influence on the company is undeniable. Uber is close to finalising a deal to sell its South-east Asia operations to Grab, even though, as my colleague Andy Mukerjee argued, the move is premature. (SoftBank also owns part of Grab.)
It's surprising, therefore, that SoftBank hasn't done anything about its stake in Yahoo Japan. A dividend recapitalisation loan would work better on its balance sheet than ARM's, considering the Internet portal's robust cash position. Yahoo Japan can reliably generate US$1 billion of operating cash a year. At interest of 5 per cent, that could translate into as much as US$20 billion of loans.
But there's a problem. With a 43 per cent stake, SoftBank doesn't have full control of Yahoo Japan.
So it's curious that when Altaba, Yahoo 's spin-off, said last month that it will look to sell its 35 per cent stake in Yahoo Japan as soon as April, there wasn't a joint announcement from SoftBank. The relationship between the two seems to have become strained. SoftBank has passed over its first right to buy, leaving Altaba to sell on the open market.
Yahoo Japan doesn't do much for its two main shareholders. It pays out just 37 per cent of earnings and its stock has been moving sideways - not much of a valuable pledge for a bank loan.
To be sure, compared to SoftBank, Altaba isn't in a good place. SoftBank doesn't need to buy Altaba's entire 35 per cent interest, all Mr Son needs is control. Plus he could always pick up shares cheap on the market later.
As he embarks on this little bout of spring cleaning, Mr Son would do well to be a bit more thorough in his focus. BLOOMBERG GADFLY
- This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
- The writer is a Bloomberg Gadfly columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.