The sale of arm to NVIDIA comes at a time when Softbank is also discussing restarting the group’s privatization

0
217

Softbank is seeking to reorient its strategy after a series of large-scale asset disposals, and its executives have reopened discussions about its privatization, according to people familiar with the matter.
The discussion was driven by the continued underpricing of Softbank’s $115 billion stock valuation, which continues even with a series of asset sales plans to narrow the gap.
Softbank will sell arm to NVIDIA, the U.S. chipmaker, for more than $40 billion in cash and stock, the latest plan to sell will be announced this week. According to media reports, the deal will make Softbank the largest shareholder of NVIDIA.
Softbank has made a series of fundamental changes to its long-term business strategy since it launched its $100 billion vision fund in 2016, which has also accelerated the process of privatization, according to people familiar with the matter. At the heart of these problems is that the company increasingly sees itself as an investor and asset manager rather than running its business directly as it has been for 39 years.
Shareholders’ close attention to Softbank’s recent bold bet on U.S. technology stocks has also increased the possibility of becoming a private company. The Japanese group is known as the “NASDAQ whale” for its large-scale stock options trading.
Softbank founder sun Zhengyi has considered delisting many times in the past. If Softbank delisted, it would be a heavy blow to the Tokyo stock market. In Tokyo, Softbank represents Japan’s closest business to the Silicon Valley giants. Softbank ranks second in the Nikkei 225 index. The Nikkei 225 average is the benchmark index for many Japanese retail and institutional investors, mainly technology stocks.
Mr Sun owns 26% of Softbank. As Softbank’s asset sale plan launched in March is coming to an end, the management buyout negotiations led by sun Zhengyi have been further promoted. The plan aims to fund $41 billion in share buybacks and debt repayments.
The sale was launched in March this year. Earlier, Softbank’s share price fell to its lowest level since 2016 during the stock market crash, which also put pressure on Mr. Sun, who borrowed a large number of shares as collateral. Prior to the asset sale, the group had interest bearing debt of $115 billion.
At that time, under the support of the state-owned bank of Abu Dhabi, the management of the company was briefly discussed.
Since then, however, Softbank’s share price has rebounded rapidly, reaching its highest level in 20 years last month. But executives are still complaining that they attribute the rise in their share price mainly to the rise in Alibaba’s share price, rather than the narrowing discount between Softbank’s share price and its holdings.
Softbank’s Tokyo listed shares rose to a 20-year high of 7077 yen (US $67) on August 4 after reducing its stake in Alibaba, T-Mobile us and its Japanese telecom business, but even so, its asset value was still at a 45% discount. When the market slump triggered by the outbreak peaked in mid March, the discount was extended to 73%.
Although Mr. Sun finally agreed to sell the assets, his dissatisfaction with Softbank’s share price was amplified. Recently, it was disclosed that Softbank had made a big bet on stock derivatives, which caused the group’s share price to fall by 7%.
According to two of the people familiar with the matter, internal opposition to MBO remains strong, as the identity of listed companies is highly respected in Japan. But once Mr. Sun completes the $40 billion deal to sell arm to NVIDIA, the US chipmaker, his case for MBO will be stronger even among skeptics.
Softbank declined to comment.
Market rumors about Softbank’s privatization have intensified after the rapid pace of asset sales and the talks to sell arm to NVIDIA, a chipmaker. “Given the size of its repo business, we believe that delisting through MBO is a possibility,” Satoru Kikuchi, an analyst at SMBC Nikko Securities, wrote in a report released last week
But other analysts and investors said they thought the possibility of MBO was low. Softbank’s relationship with Japan’s big banks largely depends on its position as one of the most valuable listed companies in Japan. In Japan, the listing status of companies is still crucial to attract the best graduates.
As Mr. Sun considers privatization, bankers and lawyers in Tokyo say companies that have been listed for decades have set off an unprecedented wave of management buy-out negotiations and now believe that the burden of keeping them public is too high. This is especially true for companies that are highly watched, such as Softbank.