TOKYO (BLOOMBERG) - Masayoshi Son is finally getting some good news.
After a punishing year, the founder of SoftBank Group won approval for the sale of his Sprint Corp to T-Mobile US Inc, a long-delayed acquisition that had been fiercely opposed by states including New York and California. The deal would extract the Japanese billionaire from the cash-draining US wireless business and remove about US$40 billion (S$55.5 billion) in net debt from his balance sheet. Sprint shares rose 78 per cent in US trading on Tuesday (Feb 11) after a US court approved the deal, while SoftBank's stock surged as much as 13 per cent in Tokyo.
Son has been struggling to regain his footing after the meltdown at WeWork last year. Following the co-working start-up's failed initial public offering, he suffered setbacks at portfolio companies, including Wag Labs, Zume Pizza and Brandless Inc. The US activist investor Elliott Management Corp just took a stake in SoftBank, arguing its shares are undervalued.
The Sprint sale helps Son in several ways. SoftBank will no longer face the risk of having to fund the wireless operator, a huge debt load will move off its balance sheet and Son will have more flexibility in raising capital for a share buyback or for his planned second US$100 billion investment fund. Son will also have something to talk up to investors when he reports financial results on Wednesday.
"This is obviously great news for Sprint," said Kirk Boodry, an analyst at Redex Holdings who writes for Smartkarma. "It is better news for SoftBank."
SoftBank shares' 13 per cent jump on Tuesday is the most in a year on an intraday basis. The stock has gained about 20 per cent this year including today's increase.
The terms of the T-Mobile deal are likely to be revised because the original deal has expired, Boodry said, which means SoftBank may end up with a smaller stake in the combined company. But SoftBank won't be on the hook for what Boodry estimates would be a potential US$5 billion to US$10 billion in capital investments. The two companies said they plan to close as soon as April 1.
SoftBank Group is expected to return to profitability in the December quarter after reporting a loss of more than 700 billion yen (S$8.8 billion) in the previous quarter, including the writedown at WeWork. Still, operating profit is projected to fall about 20 per cent to 345 million yen, according to estimates compiled by Bloomberg.
In recent years, Son has overhauled his company to focus on start-up investments and shift away from the more traditional telecom business. He set up the US$100 billion Vision Fund in 2017 with the goal of becoming the biggest investor in technology. He even sold a stake in his Japanese wireless operation to public shareholders so he could focus on deals. For several quarters, his performance seemed strong as start-up valuations rose and SoftBank regularly booked gains.
But Uber Technologies, one of SoftBank's biggest bets, stumbled as it went public last year. Then WeWork's valuation crashed from US$47 billion to less than US$8 billion. Public investors suddenly turned their backs on the fast-growing, money-losing start-ups that SoftBank had favored.
In taking its stake, Elliott has urged SoftBank to buy back its shares because of their discount, arguing it could spend as much as US$20 billion by trimming investments in companies like Sprint and Alibaba Group Holding. The New York hedge fund also wants SoftBank to boost the independence and diversity on its board and bring more transparency to its investment approach.
Son is still determined to raise a second Vision Fund, originally targeting at least US$100 billion. His early backers are reconsidering their commitments. But SoftBank has weighed contributing US$40 billion to US$50 billion, people familiar with the matter have said.
With the Sprint sale heading for completion, Son would have more flexibility with his finances. The deal won't bring in capital because SoftBank's Sprint shares will be converted into stock in the combined entity. But he will be able to borrow against the equity, which is likely to be worth more given the early share reaction.
"It certainly changes the conversation," said Chris Lane, an analyst with Sanford C Bernstein. "This is the first piece of good news in quite a while."