SoftBank Climbs After Saying IPO of Mobile Unit Is an Option

(Bloomberg) -- SoftBank Group Corp. shares rose in Tokyo trading after the company said it is considering an initial public offering for its mobile phone unit.

The stock climbed as much as 5.9 percent on Monday, the biggest intraday gain since June. SoftBank is planning to list its wireless unit in Tokyo and overseas this year and the offering could bring in about 2 trillion yen ($18 billion), according to the Nikkei newspaper. Listing the shares is one of the options, but no decision has been made to officially proceed with the IPO, the company said in a statement.

SoftBank founder Masayoshi Son has been examining ways to unlock value and boost the conglomerate’s share price. While the Tokyo-based company has a market value of about 10 trillion yen, it holds assets that could be worth more than that, including a stake in Alibaba Group Holding Ltd. that’s been valued at more than 19 trillion yen, excluding debt. Son has also been focusing on the longer-term vision for a company, which he built into over three decades through a series of high-stakes bets. Last year, he formed a new fund to invest as much as $100 billion in the global technology industry.

“Given that you have to apply a massive conglomerate discount to come to a fair value for SoftBank, the implication is that this news should send SoftBank shares substantially higher,” Pelham Smithers, whose London-based firm offers equity research on Asian technology companies, wrote in a note to clients. “It means that SoftBank appears willing to treat operating assets, like investment assets, as tradable commodities.”

An IPO of the mobile unit has been debated inside and outside SoftBank for years. Bloomberg News wrote in 2016 that it is one of Son’s options for closing the valuation gap.

SoftBank is planning to apply to the Tokyo Stock Exchange as soon as this spring for a listing on the bourse’s first section with a listing abroad, perhaps in London, about the same time, the Nikkei said.

“The listing of its domestic mobile unit has been one of the key moves we have been anticipating for the firm to raise cash and lower its debt levels,” Amir Anvarzadeh, head of Japanese equity sales at BGC Partners Inc. in Singapore, wrote in a note.

SoftBank will not use the proceeds from the listing to pay down debt, and instead invest the money in overseas technology companies, the Nikkei reported. The mobile business has an enterprise value of about $71 billion, according to Chris Lane, an analyst at Sanford Bernstein. Smithers has a similar valuation. The final amount will depend on how many liabilities are attached to it before the listing, Lane said. The SoftBank group had 12.1 trillion yen of net debt as of September.

SoftBank’s domestic wireless operations generated 913 billion yen of revenue in the six months ended Sept. 30. Sales fell 4.7 percent from a year ago because of upfront investments and discounts designed to lure users. The company, which also offers broadband services, had 32.8 million mobile subscribers.

Over three decades, Son used borrowed money to transform the software wholesaler he founded in 1981 into a phone company spanning two continents. In Japan, he built a challenger to larger carriers and was first to bring Apple Inc.’s iPhone to the country. He bought Sprint Corp. to take on the top players in the U.S., Verizon Communications Inc. and AT&T Inc.

SoftBank veteran executive Ken Miyauchi has run the mobile business since 2015 and took charge of all domestic operations the following year as Son increasingly devoted more of his time to overseas bets. The 60-year-old billionaire made about 100 investments last year from ride sharing, co-working and robotics to agriculture, cancer detection and autonomous driving with a total value of $36 billion, according to research firm Preqin. That’s more in dollar terms than Silicon Valley’s top two heavyweights, Sequoia Capital and Silver Lake, combined.

“I have never thought that SoftBank’s core business is telecommunications in any one day in my whole life, because SoftBank’s core business is information revolution,” Son said at a briefing in November. The company is scheduled to report earnings results on Feb. 7.

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