SoftBank’s Son Has a New Lesson for Private Equity

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There’s no doubt that SoftBank Group Corp. founder Masayoshi Son is a master tactician. His latest idea is a beautiful amalgam of the best parts of his own business strategy and the modus operandi of private equity firms. And it just might work. 

Son’s team is debating a new plan to gradually buy up shares in SoftBank until Son has a big enough stake to take control, Bloomberg News reported Wednesday. That process could take more than a year and would likely require more monetization of SoftBank assets to fund. Although this “slow-burn” buyout is a unique concept, there’s something familiar to those who have watched how Son does business.

Whether it’s taking over telecom operators, shopping for unicorns, or buying back shares to boost the stock, Son’s path to enrichment has the same underlying mechanism: other people’s money. (Not to mention the corporate governance red flags that seem to pop up.)

This proposal, also called a slow-motion buyout, is that same strategy writ large. Rather than use his own cash or take out a loan under his own name to boost his stake in SoftBank — which currently stands at around 27% — Son would use the funds of the company he runs to buy other people’s shares. Without spending a dime of his own, he can increase the effective concentration of his existing holdings. 

In doing so, Son can also eschew the usual management buyout model of enlisting a private equity firm to collectively bid for outstanding stock. Such an approach would leave the management team sharing power with its financial backers. This new approach means he may not require such help at all. 

What Son will need, however, are debt investors willing to keep lending SoftBank money to buy back its own shares. Also, a market of people who might want to buy some of the assets SoftBank has on hand, which include a stake in Alibaba Group Holding Ltd., domestic telco SoftBank Corp., and maybe even parts of the two Vision Funds

Skepticism is warranted. Just because SoftBank is debating this strategy doesn’t mean Son will actually enact it. According to the Bloomberg News report, many within the company oppose any thought of going private. Talks with both activist investor Elliott Management Corp. and Abu Dhabi sovereign wealth fund Mubadala Investment Co. to help fund a buyout also don’t seem to have borne fruit. Now, SoftBank seems ready to go it alone.

Yet merely floating the idea is enough to boost the stock, as witnessed by SoftBank’s 7.2% climb within two hours of the report. At the very least, the prospect of a creeping takeover funded by share buybacks could put a floor under the stock amid an epic climb this year that’s now taken it to the highest level in two decades.

A downside would be to remove the quarterly earnings spotlight that  Son thrives under. Yes, the last few investor conferences have been littered with bad news — the WeWork reckoning, for example. But Son’s skill at denial and spin enabled him to talk up his record, as if losing $16.6 billion on investments in a single year was like dropping a quarter in the mud. 

While skeptics, like me, keep shaking their heads at the myriad ways the Japanese billionaire distracts his audience from bad bets, fans hang on every word as evidence of brilliance. And SoftBank’s 74% rise this year seems to prove them right. He could still crow about his greatness, but wouldn’t attract the same attention.

Yet even if Son loses his biggest platform for publicity, this slow-burn buyout would allow him to hold onto the company without sharing the stage. Or the spoils.

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

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

©2020 Bloomberg L.P.

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