SoftBank Group, the multinational holding company, is considering a new plan to go private by gradually buying back outstanding shares until founder Masayoshi Son has a significant enough stake so that he can squeeze out the remaining investors, sources said.
The plan would possibly take more than a year which would mean that the Japanese company would have to sell assets to finance successive buybacks. Mr. Son wouldn’t purchase more shares himself, but when other investors sell stock, his ownership interest, now around 27 percent, would increase. Under Japanese laws, when he gets to 66 percent stake, Mr. Son could pressure other shareholders to sell, perhaps without paying a premium.
One benefit of the plan, which insiders have dubbed a buyout “slow-motion” or “slow-burn,” is that it gives SoftBank flexibility to purchase its own stock when it dips. In the case of a formal buyout, a premium, perhaps about 25 percent, will have to be paid. Shareholders are also likely to support buybacks, especially since the company continues to trade at a discount to the total value of its holdings in companies from China’s Alibaba Group Holding and US-based Uber Technologies to DoorDash.
The idea of going private has been discussed by Mr. Son off and on for at least five years. He started negotiations with advisors and lenders, including US-based Elliott Management and Abu Dhabi sovereign wealth fund Mubadala Investment, when the shares of SoftBank crashed in March due to the coronavirus pandemic. Even with SoftBank’s market capitalization at about $50 billion and its reserves worth three times that, banks proved hard to persuade. An individual involved in the negotiations has said they proposed unfavorable terms, sabotaging the talks.
Instead, Mr. Son unveiled plans to sell about $43 billion in assets to pay down debt and buy back stock. By June, he had offloaded $13.7 billion of Alibaba stock. He then went even further, announcing the sale of Arm to Nvidia Corp. for about $40 billion, slashing the stake in SoftBank by about a third and selling a controlling shareholding in American phone-distribution company Brightstar Corp.
Mr. Son claims he’s sitting on $80 billion in cash now. SoftBank has had some major investment gains, including China’s KE Holdings and DoorDash, thanks to the robust initial public offering market.
SoftBank’s market value has surged however, with a rally of more than 160 percent since its low in March. The value of the stock outside of his control is about $87 billion.
Some analysts are skeptical Mr. Son would pursue a buyout now given such challenges and his propensity to use any cash he has for ambitious deals.
“Until this year, Mr. Son has shown little appetite for tackling the discount with buybacks,” said Atul Goyal, a senior analyst. “Are we supposed to believe that he will now spend years and all of SoftBank’s cash on this scheme, instead of doing what he really loves which is making big bets in the tech space?”
The problem with a slow-burn strategy is that the buybacks are likely to raise the cost of the eventual deal, according to experts. Even if Mr. Son manages to raise his personal stake in the company to 66 percent, many are not convinced he will be able to pull off the buyout without a challenge from minority shareholders.
Many inside SoftBank are also against the idea of going private. The sheer amount of cash required is one obstacle. Going private is also likely to cause blowback from credit-rating agencies, making the refinancing of billions of dollars in corporate bonds more difficult, one person said. A buyout would actually prevent Mr. Son from doing big deals for as long as a year and a half, one factor giving him second thoughts, a different person said.
In February this year, when he addressed the idea of a buyout, Mr. Son said he decided against pursuing a deal after giving it serious consideration. Keeping SoftBank public would allow shareholders to participate in the company’s growth and enforce management discipline, including transparency, he said at the time.