Masayoshi Son, chairman and chief executive officer of SoftBank Group Corp., speaks during a news conference in Tokyo, Japan. 9Photographer: Kiyoshi Ota/Bloomberg)

SoftBank Bets $1 Billion on Battered Payments Firm Wirecard

(Bloomberg) -- SoftBank Group Corp.’s $1 billion bet on Wirecard AG is a boon for the battered German digital-finance firm and secures a major European partner for the Japanese tech conglomerate that’s bulking up in mobile payments.

For SoftBank, the agreement furthers its transformation from a telecommunications operator into a technology investor under founder Masayoshi Son. For Wirecard, the investment means easier access to markets in Asia and a vote of confidence after months of whipsawing shares following allegations of accounting misdeeds at its Singapore unit.

The deal involves a strategic partnership and a potential 5.6 percent stake at a price that’s 27 percent below Wirecard’s peak. The transaction, backed by convertible bonds, could make SoftBank Wirecard’s second-largest shareholder after Chief Executive Officer Markus Braun.

The deal is a “clear positive” for Wirecard, Knut Woller, an analyst with Baader Bank AG, said in a note. It will enable the company, based near Munich, to better sell its products in Japan and South Korea, which were still white spots in Wirecard’s regional footprint, he said.

Wirecard shares jumped as much as 10.9 percent and were up 10.7 percent at 136.65 euros at 3:03 p.m. in Frankfurt trading. The rally lifted the firm’s market value to 16.9 billion euros ($18.9 billion) -- once again surpassing that of Deutsche Bank AG, Germany’s largest lender. Wirecard’s American depositary receipts climbed Tuesday after Bloomberg News reported the talks.

The five-year securities will allow an affiliate of SoftBank to acquire the 5.6 percent holding in Wirecard at 130 euros a share, the German company said in a statement Wednesday. Wirecard’s revenue soared to 2.1 billion euros last year after an aggressive expansion masterminded by CEO Braun that saw the company buy at least 18 companies over several years.

“Wirecard has a strong track record in pioneering innovation in digital payments and has been at the forefront in reshaping modern consumer behaviors,” a spokesman for Tokyo-based SoftBank said. “We are excited to partner with the company and see huge potential to deploy this technology at scale across new markets and sectors within SoftBank’s global technology portfolio.”

A cash injection by SoftBank could help shore up investor confidence in Wirecard after a series of reports published by the Financial Times since January that alleged accounting wrongdoing at the company’s Singapore operations. Wirecard had seen its share price fall by more than 40 percent in the aftermath of the accusations.

Wirecard has repeatedly denied wrongdoing and said an investigation cleared it of material faults. It said on April 5 that an accounting executive who has been at the center of fraud allegations at the Singapore business has left the company. The German financial regulator BaFin banned short trading on the stock for two months until lifting the restriction on Friday.

Asia Expansion

“SoftBank Group will seek to support Wirecard’s geographic expansion into Japan and South Korea, as well as providing collaboration opportunities within SoftBank Group’s global portfolio in digital payments, data-analytics/AI and other innovative digital financial services,” Wirecard said in its statement.

The partnership would expand Wirecard’s reach in Asia, one of its key growth regions. The firm operates as one of several payment providers for ride-hailing service Uber Technologies Inc., in which SoftBank’s technology-focused Vision Fund owns a 15 percent stake.

The agreement with SoftBank followed weeks of discussions by the companies’ top management, people familiar with the matter said. SoftBank could buy more Wirecard shares on the market at a later stage, one of the people said.

Closer ties with its new investor could help Wirecard win more business from Uber and other portfolio companies under SoftBank’s Vision Fund, one of the people said. It could also provide services to Alibaba Group Holding Ltd., in which SoftBank also owns a stake.

Payment Shift

SoftBank has reshaped the startup landscape with the Vision Fund, which is in talks with investors to add as much as $15 billion more to its current $100 billion value, people familiar with the discussions said earlier this month. Over about two years, the Vision Fund has invested more than $70 billion in tech companies.

The payment sector has yet to see the emergence of a clear global leader. PayPal Holdings Inc., Ant Financial, Tencent Holdings Ltd. and Paytm have all become major players, albeit in limited geographies, while Apple Inc. and Samsung Electronics Co. haven’t gained significant market share.

“It could potentially be quite savvy for them to invest via a convertible structure because they protect their downside with the bond yet still have upside should the business perform well in the future,” said Rob Chandra, a general partner at Avid Park Ventures and a lecturer at the Haas School of Business at the University of California at Berkeley. “We are in the early innings of a massive global shift to electronic payment processing. If Wirecard’s issues are behind them, then this could be a smart investment.”

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