Investors Press SoftBank on Losses -- WSJ
November 27 2019 - 03:02AM
Dow Jones News
Shareholders criticize Japanese company over its bad bets and
loans to executives
By Liz Hoffman and Phred Dvorak
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (November 27, 2019).
SoftBank Group Corp.'s biggest investors are putting pressure on
the tech conglomerate over its governance and for bad investments
in its $100 billion investment fund.
Investors including Capital Group, hedge fund Tiger Global
Management LLC and Southeastern Asset Management Inc. have
privately criticized the company over losses in the Vision Fund and
governance issues in recent weeks, people familiar with the matter
said.
The investors have also criticized SoftBank's plan to help raise
cash for a second Vision Fund by lending billions of dollars to its
own executives, the people said.
The Wall Street Journal reported in August that SoftBank planned
to lend as much as $20 billion to Chief Executive Masayoshi Son and
other top executives to invest in the fund, helping a fundraising
effort that has stalled.
In conversations with SoftBank executives and investor-relations
staff, those shareholders and others -- including AllianceBernstein
LP and Odey Asset Management -- have criticized the loans as risky
and said they could create conflicts of interest between the
executives and investors.
In addition to Mr. Son, the borrowers include several SoftBank
board members who also hold senior roles at the Vision Fund. The
company hasn't disclosed details of the arrangement to
investors.
SoftBank declined to comment on its conversations with
shareholders. Mr. Son has said he is aware of the skepticism toward
his company's stock. In recent quarters he has started out each
earnings press conference by saying the group's revenue and profit
figures are meaningless and emphasizes more positive numbers such
as the value SoftBank has created for its shareholders, measured by
the value of its equity holdings minus debt.
Capital Group -- one of SoftBank's largest shareholders, with a
2% stake as of Sept. 30 -- and AllianceBernstein have told SoftBank
executives that Mr. Son shouldn't participate in the loan program,
people familiar with the matter said. Tiger Global complained about
corporate governance rather than SoftBank's investments, a Tiger
Global spokeswoman said. Some investors shared their concerns
during meetings with Mr. Son and Navneet Govil, the Vision Fund's
finance chief, at the company's quarterly earnings presentation
last month, some of the people said.
Shareholders have long had doubts about SoftBank as it morphs
from a mobile-phone carrier to a technology-investment company with
stakes in Alibaba Group Holding Ltd. as well as dozens of startups
including Uber Technologies Inc. and its Chinese peer Didi Chuxing
Technology Co.
SoftBank invested $25 billion in the Vision Fund and raised the
rest from outside investors. The fund is now in trouble, writing
down its bets on WeWork, Uber, Slack Technologies Inc. and facing
problems in smaller startups including dog-walking app Wag,
home-goods retailer Brandless and robotic-pizza maker Zume.
The Vision Fund reported an $8.8 billion loss for SoftBank's
most recent quarter, which ended Sept. 30. The fund's value is
still up since its 2017 launch, but much of the 29% cumulative
gains it reported in March has been lost, people familiar with the
matter said.
SoftBank's shares have fallen 30% since late July. Several
brokerages have lowered their target prices for SoftBank shares,
but many still have buy ratings on the stock.
Many value-oriented funds, which try to buy shares on the cheap,
invested in SoftBank because its shares are valued at $80 billion,
far below the value of the company's assets. SoftBank's stake in
Alibaba alone is valued at $125 billion.
Companies that trade below the value of their assets can be
vulnerable to a shareholder revolt or an activist investor, though
SoftBank is insulated somewhat by Mr. Son's 25% ownership
stake.
A spokesman for Southeastern -- which has waged activist
campaigns before -- declined to comment, as did representatives for
Capital, AllianceBernstein and Odey.
Despite writing down its bet on WeWork, SoftBank's shareholder
value actually grew by Yen1.4 trillion ($13 billion) to Yen22.4
trillion during the quarter ended September -- largely because of
an appreciation in Alibaba shares, Mr. Son said. The big losses at
the Vision Fund -- including a write-down in the value of Uber
shares -- comprised only about 1.3% of that total shareholder
value, he said.
"I know if I explain things this way plenty of people will say,
there's Son just picking the good parts to talk about again," Mr.
Son said at the company's earnings news conference in early
November. "But it's a fact."
Write to Liz Hoffman at liz.hoffman@wsj.com and Phred Dvorak at
phred.dvorak@wsj.com
(END) Dow Jones Newswires
November 27, 2019 02:47 ET (07:47 GMT)
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