By Liz Hoffman, Jenny Strasburg and Sarah Krouse
SoftBank Group agreed to buy asset manager Fortress Investment
Group LLC for $3.3 billion, in a surprising move that is part of an
effort by the Japanese technology giant to transform itself into
one of the world's largest investment firms.
Fortress Class A stockholders are to get $8.08 a share, the
companies announced late Tuesday after The Wall Street Journal
reported on the deal. That is 39% above the closing price Monday,
excluding dividends. The shares surged by about 6% Tuesday before
word of the acquisition surfaced.
The move took some SoftBank watchers by surprise. The company,
run by Masayoshi Son, one of the best-known and most-colorful
Japanese businessmen, is known for bold acquisition moves in the
technology and communications arena. In September, for example,
SoftBank purchased ARM Holdings PLC, a U.K. designer of
microprocessors, for about $32 billion; in 2013, it acquired
control of U.S. mobile-phone carrier Sprint Corp.
The Fortress acquisition nonetheless fits Mr. Son's ambitious
long-term plans to become one of the world's biggest asset
managers, focusing on technology but with a broader platform to
raise money and shepherd companies across different sectors. In a
statement, Mr. Son said the acquisition, along with a gigantic
investment fund he's creating, will speed up a transformation aimed
at long-term growth.
Mr. Son is spearheading the $100 billion fund to help put his
company and investors at the forefront of emerging technologies
such as artificial intelligence and the Internet of Things, in
which everyday objects such as thermostats, watches and cars are
connected online.
The deal will make SoftBank one of the biggest alternative asset
managers in the world. Fortress, which is listed on the New York
Stock Exchange, manages about $70 billion in assets and invests in
real estate, credit and private equity. The firm was founded in
1998 and is led by Chief Executive Randy Nardone, who, along with
Pete Briger and Wes Edens, will continue to lead Fortress.
The firm will continue to operate independently within SoftBank
and be based in New York.
So-called alternative-asset managers like Fortress have emerged
as appealing targets to some in part because they are able to
charge higher fees and typically require long-term investments from
backers. Revenue at traditional money management firms has been
squeezed in recent years by the growing popularity of low-cost
index-tracking funds and a difficult environment for stock
pickers.
SoftBank gains a global network of investors that could help it
find and structure deals. It also picks up an asset-management back
office -- compliance, legal and other functions -- that could help
as it builds out its own investing business.
SoftBank believes it can double Fortress's assets in the next
few years, partly by shopping its funds to Mr. Son's network of
sovereign funds and global billionaires, according to people
familiar with the matter. It plans to sell a slice of Fortress's
operating unit, known as the general partner, to some in that
network, the people said.
Fortress was the first U.S. hedge-fund manager to sell shares to
the public, in early 2007. Its public offering raised more than
$600 million at a frothy time in the markets and when hedge-fund
assets were swelling. It valued the company at more than $7
billion, with the shares debuting at $35 each -- almost double
their offering price and well above what it is selling for now.
The IPO was billed as a move toward 'democratizing' hedge- and
private-equity funds, which have long been reserved for the wealthy
and big institutional investors such as pension funds.
But Fortress's shares soon slid as the financial crisis broadly
hit the returns of private investment funds.
Today it is one of many publicly traded U.S. asset management
firms, including several focused on so-called alternative asset
classes. Fortress shares have had a boost in recent months as some
financial stocks gained ground. They were up 28% so far this year
and rose 25% after hours to $7.75.
Despite recent success in credit investing, Fortress hasn't been
immune from a yearslong slump in hedge-fund performance. The firm
in recent years shut down a fund that bet on global macroeconomic
shifts, though it still has a credit business. In addition to its
alternative strategies, Fortress also owns Logan Circle Partners, a
fixed-income investing unit.
Foreign investors, particularly from Asia, have been shopping
for financial-services assets in the U.S. in recent years.
Singapore-based Shanda Group, which bought a stake in Legg Mason
Inc. last year, has said it plans to increase that position to 15%
from 10%, for example.
London-based bankers Nizar Al-Bassam and Dalinc Ariburnu, of
investment firm F.A.B. Partners, helped arrange Tuesday's deal and
are advisers to SoftBank's new investment vehicle, known as the
Vision Fund. Messrs. Al-Bassam and Ariburnu previously worked with
the head of the fund, Rajeev Misra, at Deutsche Bank AG. Mr. Misra
worked at Fortress for less than a year before he joined SoftBank
in 2014.
The F.A.B. bankers since December have been working on the
Fortress deal, according to a person familiar with the matter.
SoftBank executives and their advisers have internally discussed a
target for doubling Fortress's assets in the next three years.
Write to Liz Hoffman at liz.hoffman@wsj.com, Jenny Strasburg at
jenny.strasburg@wsj.com and Sarah Krouse at
sarah.krouse@wsj.com
Corrections & Amplifications SoftBank purchased ARM Holdings
for $32 billion in September. An earlier version of this article
misstated the price.
(END) Dow Jones Newswires
February 15, 2017 02:47 ET (07:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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