Softbank’s Masayoshi Son agrees to work with Elliott Management

Author: Lindsey Boycott

Estimated read time: 4 minutes

Publication date: 17th Feb 2020 11:31 GMT+1

Paul E. Singer has never met a challenge that he couldn't overcome, and his $40.2 billion hedge fund firm Elliott Management is proof of that fact. Known well in Wall Street circles as an "activist investor," Singer has a new company in his crosshairs – Japanese tech investment titan Softbank (OTC: SFTBY). There are many 'starts' to a story when Singer involves himself with a company, but they all tend to end in one way – his way.

Led by the outspoken and audacious billionaire Masayoshi Son, Softbank's $100 billion in funds are often guided by the founder’s gut feeling. Unfortunately, the firm has suffered several startup setbacks in recent months – the most notable being the bailout of Silicon Valley darling WeWork after a failed attempt at going public in September. Then there was Wag, the dog-walking app, and Zume, an automated pizza delivery company that didn't work out either. In fact, the investment firm reported its biggest quarterly loss of $2.05 billion in its 38-year history.

Singer sees potential for SoftBank and is attracted by the company's struggling stock prices as investor fears over the recent losses had shares spiraling down. Elliott Management quietly bought up almost $3 billion worth of those stocks – worth about 3 percent of SoftBank's market value – and is in contact with Son and his leadership team about what he feels should be the next steps for the company.

Most of the suggestions call for greater transparency, an improved investment decision process for the $100 billion Vision Fund, and corporate buyback of between $10 to $20 billion in stocks. In Singer’s opinion, the shares are substantially undervalued when compared to Softbank’s assets. Some of the firm’s larges assets, such as China's e-commerce site Alibaba (NYSE: BABA) and America's mobile carrier Sprint (NYSE: S), are worth an estimated $210 billion.

As for Son, many believe he is taking an appeasement approach with Elliott. “We are thankful that such a distinguished investor has joined us as a friend,” Son said at a press conference in Tokyo. “We are basically in agreement on carrying out large buybacks when the finances allow it.”

Chris Lane of Bernstein, a broker, believes that a stock buyback is likely to occur after Son's Sprint deal – once a federal judge approves its sale to T-Mobile (NASDAQ: TMUS) – closes and there is a new infusion of capital. On February 11, a ruling was made in favor of the multi-billion purchase of Sprint to T-Mobile. T Mobile is pushing to renegotiate some terms of the deal and both parties are planning to meet next week.

Stocks are up 21 percent this year after a tumultuous series of events sent the numbers surging with Softbank's record buyback, then sinking with Uber's (NYSE: UBER) IPO fell flat, and WeWork imploded but swinging up after Singer’s involvement with Softbank became public knowledge. It's a sensitive time for the investment firm as it responds to demands from Elliott Management and plots its course ahead.

If Softbank's shares continue to climb, Singer may sell his stake in Softbank and exit. On the other hand, the hedge fund manager has never shied away from hard-hitting strategies to see his way to victory.

For instance, Singer has suggested that a special committee be struck to oversee investment decisions that would usually fall under the purview of the founder. Son, however, is an indomitable leader with long-reach – mainly due to his 20 percent ownership of Softbank – and perhaps little interest in changing his ways. Singer may have a difficult time ahead if he intends to reform Son.


Photo Credit: Frank Busch on Unsplash


Disclaimer: The writer is an experienced financial consultant who writes for The observations he makes are his own and are not intended as investment or trading advice.