Once known for its unorthodox style and on-the-spot deal making, Japan’s SoftBank Group Corp. is significantly changing its outlook to stop the plunging of its stock price and shore up its debt-laden balance sheet. After a very damaging 2019, which saw Softbank-backed WeWork lose 80% of its valuation and Uber’s stock falling by 37%, Softbank’s CEO Masayoshi Son recently announced his plans to sell the firm’s assets and repurchase firm stock in a bid to stop the floodgates from opening, so to speak. It earmarks up to $18 billion for share buybacks and another $23 billion to redeem debt and build up cash reserves. The cash will come from the sale of as much as $41 billion of SoftBank’s assets, chief among them a stake in Chinese e-commerce giant Alibaba Group Holding Ltd. that is worth between $104 billion and $109 billion, and SoftBank’s majority stake in Japan’s third-largest cellphone carrier, called SoftBank Corp.
This marks a remarkable turnaround for Masayoshi Son and his company, which was until recently one of the boldest providers of capital to several billion-dollar unicorns around the world. Softbank’s First Vision Fund invested almost $80B out of $100B over the course of just two years after its |revealed that SoftBank was involved in over 10% of global venture flows in the first half of 2019, either via its Vision Fund or related entities. Buoyed by the performance of its first Vision Fund in Q2 2019, that showed a $15.9B gain in paper value of its investments, CEO Masayoshi Son also announced plans for a second $100B+ Vision Fund. But a disastrous WeWork IPO attempt, job losses at more than ten of its US-based investments, and further worsening of the market due to COVID-19 crisis, Softbank is now faced with disillusioned investors, and its grand plans have come to a grinding halt.
It is however not the first time that Mr. Son has seen a market crash pummel SoftBank’s fortunes. In the early 2000s, the Japanese entrepreneur briefly became one of the world’s richest men, before the subsequent tech crash wiped out 99% of SoftBank’s value along with the value of hundreds of tech investments the company had at the time. Mr. Son has said he learned from that experience to keep a reserve of cash and a healthy ratio of assets to debt, in case the market collapses again. The asset-sale plan, though potentially good for holders of SoftBank’s debt and shares, could end up robbing the company of some of the qualities that made it attractive for investors.
SoftBank’s record loss shows that throwing cash at startups isn’t much of a strategy. One thing stands out though – SoftBank made its most successful bet, a $20 million investment in Alibaba in 2000, during the dot-com bubble. Two decades later, it is still banking on the Chinese company to make up for its souring startup investments.