SoftBank shares soar 17% after Masayoshi Son's $7.4b buyback, his biggest ever

Softbank Group CEO Masayoshi Son announcing the group's April-December results in Tokyo on Feb 6, 2019.
Softbank Group CEO Masayoshi Son announcing the group's April-December results in Tokyo on Feb 6, 2019. PHOTO: EPA-EFE

TOKYO (BLOOMBERG) - SoftBank Group Corp shares jumped the most in a decade on Thursday (Feb 7) on plans to repurchase as much as 600 billion yen (Softbank Soars 17% After Masayoshi Son's Biggest Ever Buyback billion) of stock, a shift in strategy for founder Masayoshi Son who has long favored spending his capital on tech investments.

Son unveiled SoftBank's biggest-ever buyback as he tries to close the gap between what he thinks the company is worth and its market value. It will be funded with proceeds from the 2.4 trillion yen initial public offering of the company's telecommunications unit in December. The stock jumped 18 per cent, the most since November of 2008, and reaching the daily limit to close at 9,962 yen.

"This latest buyback changes the equation and puts a floor under SoftBank stock," Atul Goyal, an analyst at Jefferies Group, wrote in a report.

Son spent much of his post-earnings presentation on Wednesday 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 50 per cent discount to a sum-of-the-parts calculation that includes the telecoms unit, Alibaba Group Holding, US 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's 600 billion yen buyback added more than twice that amount to the value of its stock. Its market cap rose by about 1.9 trillion yen, to 11 trillion yen.

SoftBank has had success with buybacks in the past. In 2016, Son announced the Tokyo-based company would buy as much as 500 billion yen, which sent shares up by the limit the next day. The 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 US$100 billion Vision Fund. The company's portfolio includes the world's biggest ride-hailing company Uber Technologies and co-working giant WeWork. 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.

The Vision Fund sold all of its shares in US 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 on Thursday and last through the end of January next year, and the stock will be retired. SoftBank Group's operating income rose 60 per cent to 438 billion yen in the last three months of 2018. Revenue rose about 5 per cent. 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 per cent 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 per cent 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.