SoftBank founder quietly lifts stake to 34%, edging towards buyout

Tokyo - Billionaire Masayoshi Son has quietly tightened his grip on SoftBank Group during a tumultuous market downturn, edging closer to the point where he could bid to take the world’s largest technology investor private.

He now owns more than a third of the company he founded, after aggressive buybacks in the last two months reduced SoftBank’s outstanding stock by almost 90 million. Mr Son’s stake in the company rose to 34.2 per cent from 32.2 per cent as at end-September, according to Bloomberg calculations, confirmed by the company. That is up from 26.7 per cent as recently as March 2019.

SoftBank’s share price reversed losses to close up 2.2 per cent after the news on Thursday. It was the stock’s biggest rise in three weeks.

Under Japanese law, Mr Son gains additional rights after breaching one-third ownership. The 65-year-old wields more control over asset sales, some buybacks, mergers and corporate by-laws by having the power to veto any special resolution put before shareholders by activist investors.

Mr Son is also closer to the point where he could mount an effort to take SoftBank private, an idea he has repeatedly discussed internally. One option long debated is a “slow-burn” buyout to gradually buy back shares until the founder has a big enough stake to squeeze out remaining investors.

Under Japanese regulations, Mr Son could compel other shareholders to sell if he gets to 66 per cent ownership, in some cases without paying a premium.

“There’s not a single reason why SoftBank should be listed,” SMBC Nikko Securities senior analyst Satoru Kikuchi said. The company can raise the funds it needs without being listed and without a public entity’s restrictions and costs, he said. “It’s not a good fit for the current business model.”

The idea of a buyout has been debated fiercely for years inside SoftBank. Advocates argue that going private would free SoftBank from regulatory oversight and shareholder scrutiny over investments and staffing. Venture capital peers Tiger Global and Sequoia Capital are closely held. Mr Son would take the company private if he could afford it, one person familiar with the billionaire’s thinking said.

But many lieutenants oppose a buyout, according to another person close to the situation. It would be an enormous financial undertaking that would consume management’s attention and leave it short of cash to make acquisitions and investments.

At SoftBank’s current market capitalisation, the price of a management buyout would be about US$50 billion (S$68 billion), assuming the need to buy two-thirds of the company.

Privatisation could also jeopardise the terms of debt financing for Mr Son personally. Roughly a third of Mr Son’s SoftBank shares are held as collateral, while

he already owed SoftBank US$4.7 billion at the end of September.

At an earnings call last month, chief financial officer Yoshimitsu Goto dismissed market speculation that the company’s recent flurry of share repurchases was in preparation for a management buyout. He cited technical issues that led to a concentration of orders in October.

Apart from any buyout, Mr Son’s rising influence has fuelled governance concerns. While he has always wielded substantial control, he has proven responsive to outside critiques, including when activist Elliott Management built up its stake in SoftBank in 2020.

Now, Mr Son may be less inclined to listen to outside points of view. More importantly, activists will be even less inclined to try.

Much hinges on the initial public offering of SoftBank’s chip designer unit Arm next year. SoftBank was seeking a valuation of as much as US$60 billion for Arm – almost double the amount it paid when it bought the business in 2016. If realised, that kind of return would not only provide capital to help turbocharge SoftBank’s investment machine, but it would also open a path to privatisation.

Going private “is not something that’ll happen tomorrow”, Mr Kikuchi said. “But if you’re talking about next year or the year after, it’s plausible.” BLOOMBERG