(Bloomberg) — SoftBank Group Corp. (SFTBY) announced a buyback worth up to ¥500 billion ($3.4 billion), following a month of heavy selling and pressure from activist investor Elliott Investment Management to raise its share price.
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The Tokyo-based technology investor plans to buy up to 6.8% of its outstanding shares in the year through August, according to a statement on Wednesday. The announcement came after Elliott built a sizable stake in SoftBank this year and pushed for a $15 billion buyback, people familiar with the matter said in June.
The disbursement would come as founder Masayoshi Son has indicated he is mobilizing resources for a large-scale investment in AI. It also coincides with a correction in markets as investors re-evaluate how they evaluate AI’s potential impact on profits. SoftBank shares plunged on Monday for the biggest drop since 1998. The stock recovered much of that loss on Tuesday and Wednesday, but SoftBank’s market value was still down more than $40 billion from its record high. in July.
“Son san has a history of large buybacks when the chips are down and this appears to be no exception,” said Andrew Jackson, head of Japan equity strategy at Ortus Advisors Pte in Singapore. “As always, the devil is in the details, but it is positive that he is willing to invest so much in a buyback.”
Son has used buybacks in the past to boost his share price when he sees it as a valuable use of cash. During the Covid pandemic, as stocks fell, SoftBank spent about ¥4 trillion to buy back its shares.
SoftBank on the same day reported a smaller net loss of ¥174.28 billion in the June quarter, compared with a loss of ¥477.62 billion a year ago. Solid earnings from chip unit Arm Holdings Plc helped stem ongoing losses in Vision Fund assets.
SoftBank remains saddled with hundreds of loss-making startups that remain on the books of its main Vision Fund. The majority of this portfolio is made up of young, unlisted companies looking to navigate a rapidly changing technology landscape.
The holding company, which owns large stakes in Japan’s third-largest mobile operator as well as chip designer Arm, has a big pile of cash to invest. The company’s ability to raise more financing increased thanks to Arm’s initial public offering last year, while profits rose further with another sale of T-Mobile US Inc. shares to Deutsche Telekom AG as part of a 2020 deal .
Ahead of the market turmoil in recent weeks, Son said he was ready to hit the wall. The billionaire is working on a plan to invest around $100 billion in AI-related chips, Bloomberg reported in February. Last month, the company bought British semiconductor startup Graphcore Ltd. for an undisclosed amount. The Bristol-based startup designs semiconductors to run AI programs, but has struggled to gain traction, even as even bigger rival Nvidia Corp.
SoftBank may make significant investments in the future to increase its scale and promote collaboration with Arm, Citigroup analyst Mitsunobu Tsuruo said ahead of the earnings report. “SoftBank has just started investing in AI semiconductors,” he said.
Son is increasingly making investments through the SoftBank holding company, rather than through the Vision Fund he created seven years ago. Over the last few quarters, the Vision Fund has been selling its assets, while at the same time slowing down its investment pace. Instead, his team is increasingly advising the holding company on potential targets.
What Bloomberg Intelligence says:
SoftBank’s risk-taking approach to investing is in the spotlight, which could lead to a more volatile earnings pattern in the future. Seeking to increase exposure to hardware and energy-related infrastructures that are critical to AI development can be costly, while returns from these projects can be cyclical or have a long payback period. However, the company’s profit may fluctuate at break-even levels, as the contribution from Arm and SoftBank Corp. may be offset by the volatile performance of the Vision Funds. The net divestment of Vision Funds investment in recent quarters and the 30% reduction in staff last year imply that the group will be able to deploy more of its own money towards AI investments. This explains management’s comment about the lack of plans for immediate share repurchases, despite pressure from activist investor Elliott.
Marvin Lo and Chris McKensturm
(Updates with earnings announcement history and details.)
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