Elliott Management has quietly built up a more than $2.5bn stake in Japan’s SoftBank and is pushing the sprawling technology giant to make changes that would boost its share price, according to people familiar with the matter.
Founded by billionaire Paul Singer, New York-based Elliott is known as a formidable activist investor, often seeking to influence company management. SoftBank is one of Elliott’s largest bets, according to people familiar with the matter. At current prices, the investment would be equivalent to about 3% of SoftBank’s market value.
Top Elliott staff have met with SoftBank founder Masayoshi Son. They also have met with his deputies including Yoshimitsu Goto, the chief financial officer, and Vision Fund head Rajeev Misra, the people said, including in late January. So far, discussions between the two companies have been cooperative, some of the people said.
The discussions with the company’s leadership have focused on ways to improve its corporate governance. This includes a call for more transparency and better management of investment decisions at its $100bn Vision Fund, according to the people. Elliott has pushed for SoftBank to buy back $10bn to $20bn in shares and help close a yawning gap between the company’s market value and the value of stakes in companies in which it has invested.
“SoftBank always maintains constructive discussions with shareholders regarding their views on the Company and we are in complete agreement that our shares are deeply undervalued by public investors. SoftBank welcomes feedback from fellow shareholders,” a SoftBank spokeswoman said.
“Elliott has engaged privately with SoftBank’s leadership and is working constructively on solutions to help SoftBank materially and sustainably reduce its discount to intrinsic value,” an Elliott spokeswoman said.
SoftBank shares closed Friday in Tokyo up 7.1% after The Wall Street Journal reported Elliott’s stake.
SoftBank is one of the world’s biggest and most influential technology players. It is the largest shareholder in Chinese internet giant Alibaba, and through its Vision Fund has put money into dozens of prominent tech companies, including Uber Technologies, Slack Technologies and microchip maker Arm Holdings. It is the majority shareholder in cellular provider Sprint.
But Son’s freewheeling investing style has been under extra scrutiny since the implosion of office-sharing company WeWork’s public offering last year, which forced SoftBank to write down the value of its and the Vision Fund’s stakes by $4.7bn and $3.5bn, respectively.
SoftBank reported its biggest quarterly loss in its 38-year history in November.
Elliott is partly attracted to SoftBank because of its beleaguered share price, which is at a steep discount to the value of all the company’s holdings. Investors have said the discount reflects wariness over Son’s high-risk, debt-laden technology bets. SoftBank’s market capitalisation as of Thursday was $89bn, while the value of its stakes in Alibaba, Sprint and its Japanese telecom business alone were worth about a combined $210bn.
Son famously makes investment decisions in a matter of minutes based in part on his ability to “feel the force” in assessing a company or its founder. At the same time, Son has acknowledged mistakes, calling his judgment on WeWork “really bad” at a November 2019 news conference, and pledging to improve governance of portfolio companies and improve the share price.
Elliott’s move comes at a sensitive time for SoftBank, which is struggling to raise a second tech fund. The company said last summer it could raise $108bn, but commitments have fallen short and SoftBank has launched the fund with its own money.
A federal judge is expected to rule in the coming weeks on whether Sprint, the No. 4 US carrier by subscribers, can merge with its larger rival T-Mobile US after a coalition of state attorneys general challenged the deal.
Absent that merger, Sprint has said it will struggle to survive in its current form, creating another challenge for its parent company.
Elliott has weighed a SoftBank strategy internally for more than a year, believing that strategic changes at the company could dramatically increase its share price, a person familiar with the matter said. The SoftBank position is overseen by two London portfolio managers along with Singer’s son Gordon Singer, a partner and head of the London office, people familiar with the position say.
The hedge-fund firm has invested in SoftBank on and off for more than a decade, people familiar with its investments say. The WeWork debacle inspired Elliott to increase its stake and engage more with SoftBank management.
Elliott oversees $40bn in investments, often using shareholdings in companies to push management onto a new track in a bid to boost their share price. If a target company’s management doesn’t acquiesce, the fund can become more aggressive, taking its concerns public or using other tools to pressure the company.
Elliott staff so far have been heartened by steps SoftBank has taken since the WeWork IPO fell apart, people close to the discussions say.
SoftBank has an 11-person, all-male board, with only two independent directors. Tadashi Yanai, founder and CEO of Uniqlo parent company Fast Retailing, resigned as an independent board member of SoftBank after an 18-year stint in December.
Yanai, a fellow billionaire, was a rare dissenting voice against some of Son’s ideas and people familiar with the company said his exit was a blow to the company’s governance.
Son’s 22% personal stake in SoftBank, as disclosed by the company as of September 2019, is a powerful weapon to fight back any activist campaign because major decisions at the company require approval from holders of two-thirds of the shares voted.
This article was published in the Wall Street Journal