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SoftBank

Hard-nosed hedge fund poised to rewrite SoftBank playbook

Masayoshi Son's startup investment spree to come under increased scrutiny

SoftBank Group Chairman and CEO Masayoshi Son speaks at a SoftBank World presentation in Tokyo. The entrepreneur's aggressive investments in startups may have to change with the rise of Elliott Management's influence.    © AP

TOKYO -- SoftBank Group chief Masayoshi Son has always had a soft spot for Sakamoto Ryoma, a forward-looking samurai who ran a naval trading business in 19th-century Japan.

Son has called Sakamoto "the most beautiful man in Japan," and SoftBank's own logo is based on a flag Sakamoto hoisted on his ships.

SoftBank cites Sakamoto's ability to discern what lay ahead and get things done as "core ideals" for its business activities. Son doubtless envisions himself as a pioneer in the same vein.

But the sails on Son's ship faced a gust of new wind this week as it was learned that American activist investor Elliott Management had sunk more than $2.5 billion into SoftBank to acquire the equivalent of roughly 3% of its market value.

One of the reforms the fund manager is said to be pressing SoftBank for is an overhaul of corporate governance -- which would likely mean a smaller voice for Son, currently a dominant figure on the board. Elliott wants SoftBank to add more outside directors, although it does not appear to be considering appointing its own surrogates.

Elliott is reportedly pushing for an oversight committee for investment at the $100 billion tech-focused SoftBank Vision Fund.

Elliott is also demanding that SoftBank repurchase up to $20 billion of its own shares, Nikkei has learned, in a bid to boost its market valuation.

Such a pivot would strike at the heart of SoftBank's strategy, which is to leverage unrealized gains on its holdings of Alibaba Group Holding to raise copious funds and back promising tech startups.

While SoftBank is well-positioned to spend $20 billion on a repurchase -- crown jewel Alibaba alone generates more than 10 trillion yen ($90.9 billion) in paper profits -- doing so would clash with the Japanese technology conglomerate's investment strategy.

Elliott's stake-building aims to lift SoftBank's market value. "Elliott's substantial investment in SoftBank Group reflects its strong conviction that the market significantly undervalues SoftBank's portfolio of assets," a spokesperson told Nikkei.

After accounting for net debt, SoftBank's equities portfolio has a market value of around 25 trillion yen. But SoftBank itself is worth only about 10 trillion yen in the stock market.

Son himself has long argued that SoftBank is undervalued, and the company announced last February a stock buyback of up to 600 billion yen.

To date, the Vision Fund has invested in startups such as Uber Technologies, Slack Technologies, China's Didi Chuxing, Singapore's Grab, India's Oyo and Indonesia's Tokopedia.

But SoftBank ran into trouble last fall when one of the investment targets, office-sharing startup WeWork, scrubbed an initial public offering after reports of mismanagement surfaced. Its woes compounded with the weak stock market performances by others in which it had invested, such as Uber and Slack.

SoftBank was forced to book substantial losses, weighing on its stock price. "Elliott apparently moved to buy up SoftBank Group shares on account of the decline in stock value reflected by the problems surrounding WeWork," an insider said.

The market has reacted positively to Elliott's intervention. SoftBank shares touched a roughly six-month high of 5,116 yen on Friday before closing up 7% at 5,064 yen.

Additional reporting by Ken Moriyasu in New York.

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