The separation of SoftBank’s activities, essentially into investing and telecommunications arms, will bring “greater clarity and thereby better respond to the various needs of investors," the company said in a statement. Son said at a news conference the telecom business will emphasize dividend payments and that he’s aiming for a listing within a year.
Son has stepped up investments in technology companies over the past year, using cash flow from his telecom operations to take stakes in startups such as Uber, China’s Didi Chuxing and India’s Flipkart Online Services Pvt. Yet investors have given SoftBank little credit for those deals, as the company’s market capitalization has lagged well below the value of its assets. Spinning off the mobile phone unit may help close that gap, while raising capital and relieving some of the company’s debt burden.
“With the IPO of SoftBank’s Japan operations, the various parts of the company can continue to grow independently," Son said. “This way I can also spend more time on longer-term global corporate strategy."
SoftBank unveiled plans for the IPO as it reported earnings that fell short of estimates. Operating profit was 274 billion yen ($2.5 billion) in the period ended December, the Tokyo-based company said in a statement on Wednesday. That’s less than the 293 billion yen average of analysts’ projections compiled by Bloomberg. Sales came in at 2.4 trillion yen, beating predictions of 2.3 trillion yen.
Net income totaled 912 billion yen, well above estimates of 151 billion yen, in part because of Sprint Corp. The US wireless operator had deferred tax liabilities of 830 billion yen reversed due to changes to US tax code. Sprint also reported better-than-expected results in the most recent quarter, adding 256,000 net postpaid subscribers on all devices compared with an estimated increase of 234,000.
Earnings from SoftBank’s domestic operations may come under pressure as billionaire Hiroshi Mikitani’s Rakuten Inc. plans to become the country’s fourth major mobile-phone operator. Son, whose acquisition of Vodafone’s Japan business in 2006 was the industry’s biggest shakeup in recent history, has said he welcomes the competition.
Earnings before interest and taxes at domestic telecom operations fell 3.1% to 964 billion yen in the nine-month period ended December, as the company offered discounts to bring in new users. The company has 33 million subscribers.
SoftBank hasn’t said how much of the phone business it plans to sell or how much money it expects to raise, though it did say the unit would remain “major consolidated subsidiary." Credit-rating agency Moody’s said the offering would be credit negative as it would result in a partial loss of dividends from a principal subsidiary. “The larger the listing and higher the dividend payout, the more negative the credit impact," said Moody’s Motoki Yanase in statement.
Son, who has said the information revolution is SoftBank’s core business, has been shifting his focus to the company’s longer-term future and investments in overseas technology companies. Last year, Son formed the Vision Fund, raising $93 billion from big backers including Saudi Arabia and Apple Inc.
“I already spend time every day on Vision Fund, whether it’s meeting with or analyzing prospective companies," said Son. “It’s extremely exciting and I’m having way too much fun. This is more like pleasure, than work. I tend to forget the time."
The SoftBank valuation gap has widened in recent months to the point its market capitalization is less than half its holdings, worth at least $180 billion. Indeed, SoftBank’s was little changed in the past year, while its stake in Alibaba Group Holdings Ltd. increased by about $60 billion. SoftBank holds equity in Alibaba worth about 15 trillion yen, or 50% more than its own market value.
The Vision Fund contributed 236.4 billion yen to operating profit in the nine months ended December, the company said. The amount mainly reflects an unrealized gain on valuation of SoftBank’s investment in Nvidia Corp. The company took a stake of just less than 5% in the chipmaker last year. Nvidia’s stock rose 81% in 2017.
The Vision Fund has invested about $28 billion to date in technology companies. Son said he expects several IPOs a year from the fund.
Son has said repeatedly he wants to build a company that can last for centuries. In his presentation to investors Wednesday, Son said the phone unit IPO will help SoftBank move toward a structure that will help the company and its affiliates thrive well beyond his lifetime.
“This group strategy is something I had in mind since the very start," Son said. “I set out to make a conglomeration of No. 1 companies. That’s easy to say, but difficult to do. I can’t think of anyone else who has done it." Bloomberg