NIKKEI ASIAN REVIEW
January 18, 2018
Investors will scrutinise how SoftBank plans to spend proceeds of proposed mobile offering
SoftBank founder Masayoshi Son is aiming for an “information revolution” with his big investment fund and latest plan to list a wireless service subsidiary.
Masayoshi Son, the world’s most flamboyant venture capitalist, said recently that his core business is not boring old telecommunications, but engineering an “information revolution.” The SoftBank founder now has a chance to prove it.
Japan’s richest man turned many heads last year, using his nearly $100 billion Vision Fund to gorge on everything from ride-sharing giants to chip makers to robot designers to indoor farmers to office managers. Son’s $9 billion lifeline for Uber alone demonstrated how the 60-year-old is single-handedly rewriting the rules of Silicon Valley financing.
Now Son is making headlines for selling something: shares. As Nikkei reported on Monday, SoftBank Group may soon list it wireless subsidiary in ways that may up the pressure on Japan Inc. rivals and cheer investors.
For a stock market that is recovering after more than two decades in the doldrums, this is a big vote of confidence. A possible $18 billion initial public offering might well get to market before Bain Capital’s listing of Toshiba’s memory chip business. It also runs counter to a preference by some quoted Japanese companies, Panasonic, say, to delist subsidiaries.
But Son’s IPO gambit is even more important for his group than it is for the stock market. And for three reasons.
First, Son’s ambitions are still growing. Investors may find much to like from a separate mobile listing. It could prod the unit into better performance and address the “conglomerate discount” that has long bedeviled the parent’s shares. Creating a unique valuation and fresh demand for the telecoms unit could relieve pressure, while strengthening Son’s focus on that bigger “information revolution” vision.
Son’s IPO gamble is a sign that he is reloading his investment canon. For more risk-averse chieftains, with global interest rates rising, this might be a moment to pay down debt, of which nearly $50 billion is coming due over the next six years. But indications so far are that the proceeds will go toward new investments.
Time will tell if that is wise. New profit streams could indeed eventually help reduce debt. By harnessing SoftBank’s old-economy assets to unlock fresh funds, though, Son suggests he is not done swinging for the fences.
Investors who gush over Son’s futurist schtick ignore that, today, SoftBank still has a “POTS” problem on its hands. Plain old telephone service revenues at home generate about two-thirds of the parent’s operating income, more than Sprint. Selling a 30% stake in the mobile unit is a timely way to add value and generate future growth potential, while avoiding greater strain on an already below-investment-grade balance sheet.
Second, answering the Son question. A man often described as Japan’s Warren Buffett may be about to help investors settle one of techdom’s most tantalizing debates: is Son an investment genius or a chump chasing any deal, at any price?
The Buffett-of-the-East reputation stems from his 2000 bet on an unknown Chinese English teacher with a dream of creating an e-commerce juggernaut. Son’s $20 million wager on Alibaba is now worth about $130 billion, one of the biggest payoffs in venture-capital history. Those bullish on Son’s seemingly scattershot diversification moves are hoping Alibaba was not a fluke. Where, and how, Son deploys these $18 billion could offer some strong clues.
But Son also must prove his previous bets will not trip up SoftBank’s future. Beyond his $21 billion purchase of Sprint Nextel in 2013 and $32 billion splurge on chipmaker ARM in 2016, Son has yet to fully explain how a $3.3 billion foray into the private-equity business (U.S.-based Fortress Investment Group) fits in. Or, for that matter, the Vision Fund’s heavy reliance on cash from Saudi Arabia’s Prince Mohammed Bin Salman. Saudi money, after all, flows out of a fossil-fuels industry that Son’s investments in solar and other renewable energies seek to disrupt.
Back on radar
Either way, SoftBank’s IPO could make for a fascinating follow-the-money case study for those wondering if Son is the Oracle from Kyushu — or in over his head.
Third, waving the Japan Inc. flag. Global investors love a huge IPO and the sexiest ones in recent years came out of the greater San Francisco area and mainland cities Beijing, Hangzhou and Shenzhen. Here we have a Japanese CEO serving up an IPO rivaling NTT’s 1986 float and NTT DoCoMo’s a decade later.
Getting Japan Inc. back on the global radar screen was precisely what Shinzo Abe set out to do in December 2012. Son is doing just that with uncharacteristic panache, putting Japan on the front page for something other than deflation, corporate scandals and demographic decline. He personifies the prime minister’s hopes of regenerating Japan’s innovative moxie, animal spirits and global ambitions.
It would help, of course, if Abenomics did more to level the playing field with structural upgrades rather than relying on excessive monetary easing. Rebalancing tax incentives toward startups, not just for big companies, would create more jobs and energy from the ground up. And give Son more domestic targets as SoftBank spreads its wings.
Again, the jury is out on whether Son is worthy of the CEO worship heaped his way. SoftBank’s operating structure, after all, bears greater resemblance to a labyrinth than an MBA case study. But investors will now have the chance to offer Son an $18 billion test to see if his business revolution is for real.
William Pesek is a Tokyo-based journalist and author of “Japanization: What the World Can Learn from Japan’s Lost Decades.” He has written for Bloomberg and Barron’s.