SoftBank Makes a Meltdown Move That’s All in the Timing

(Bloomberg Opinion) -- The coronavirus outbreak has become a global pandemic, stock markets are crashing, credit is getting crunched and his stock price is down 30%. So of course, SoftBank Group Corp.’s Masayoshi Son would announce a share buyback.

This isn’t a crazy idea. It’s well-timed and savvy.

The Japanese conglomerate best known for its $99 billion Vision Fund plans to spend up to 500 billion yen ($4.8 billion) to purchase as much as 7% of its own shares. The move doesn’t come totally out of the blue. It’s one of the actions called for by activist investor Elliott Management Corp., which earlier this year took a stake of about 3% in the company, and then called on Son to improve corporate governance and appoint more independent directors.

Son is not alone in seeing opportunity in signs that the global rout could continue, even after his company has lost a third of its value. The announcement came Friday the 13th, a day after U.S. equities dropped the most since Black Monday in 1987. It includes a one-year timeline to conclude the buyback, plenty of time for prices to go lower.   

Just hours earlier, Oracle Corp. announced that its board authorized a $15 billion buyback. At the start of the week,Twitter Inc. said that it plans to repurchase $2 billion of shares under measures to placate Elliott, which had also called for changes at the social-media company.  Twitter had only lost 13% from its recent high when it made its announcement; Oracle was off about 29%. That’s how big a difference four days makes.

Investors were starting to question the outlook for Tokyo-listed SoftBank’s portfolio of companies even before the U.S. woke up to the severity of the Covid-19 outbreak. Its stake in Alibaba Group Holding Ltd. is the single largest asset on the balance sheet. The Chinese e-commerce giant is on track to report one of its worst quarters of revenue growth since listing in 2014.

Of course, the bigger issue is its stable of unicorns that live within the Vision Fund, including Chinese and Southeast Asian ride-hailing companies Didi Chuxing and Grab Holdings Inc. and short-video service ByteDance Inc., as well as troubled Indian accommodation startup Oyo Hotels.

Despite troubles at some of these investments, notably office-rental outfit The We Company (better know as WeWork), Son had brushed off most of Elliott’s concerns at last month’s investor conference and seemed unlikely to enact any of its recommendations beyond a buyback.

Among the impacts of a repurchase, beyond reducing the share pool and concentrating the value of each remaining share, is signalling confidence to investors and boosting the price. Given the macroeconomic and market environment, it’s unlikely Twitter, Oracle or SoftBank’s shares will be able to swim against the tide and quickly rebound. SoftBank, for example, closed 5.1% lower Friday after dropping as much as 9.6%.

Both SoftBank and Oracle are showing streaks of opportunism that emerge quickly in the kind of upheaval we’ve seen in recent days. Expect more — Apple Inc. has plenty of cash, and is overdue for another big buyback announcement.  If you’re committing your company to buying something, then you may as well pay rock-bottom prices for it. We’re still looking for the bottom.

It’s possible that that Son could mistime his buyback, which would make him look a little foolish.  More likely, he’ll wait for an inevitable rebound that will make him seem a genius, a moniker he has failed to earn recently.

Son may appear as though he’s listening to a vocal activist shareholder. Actually, in the rich  tradition of technology companies, he’s just being an opportunist. Watch for others to follow suit.

To contact the editor responsible for this story: Patrick McDowell at pmcdowell10@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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