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Business

Son seizes the initiative with investment pledge to Trump

SoftBank chief's move may give him a second shot at T-Mobile

TOKYO/NEW YORK SoftBank Group CEO Masayoshi Son's promise of massive investment in the U.S. could be an effort to pre-emptively sway President-elect Donald Trump's technology policy and revive the Japanese tech giant's hopes of reshaping the American mobile communications industry.

SoftBank will invest $50 billion in the U.S. and create 50,000 American jobs, Son said on Dec. 6 after a 45-minute meeting with Trump.

Both wore ties in Republican Party red, and Trump addressed Son by the nickname "Masa," hinting at a good rapport between the two businessmen despite this being their first meeting. Standing next to Son, Trump called the Japanese tech billionaire "one of the great men of industry." The meeting was arranged through a mutual friend.

The planned investment will come through a fund worth up to $100 billion that SoftBank intends to establish jointly with Saudi Arabia's sovereign wealth fund.

One of the targets of the investment will be startups, especially information technology companies, Son told reporters in the lobby of the Trump Tower in Manhattan, voicing expectations that the U.S. economy will grow and expand business opportunities under the incoming president. Son's Japanese telecom company recently acquired British chip designer ARM Holdings. However, SoftBank, which owns U.S. wireless carrier Sprint, is ready to invest aggressively in the U.S. again, Son said.

TECH WATCHER Son, who has a home in Silicon Valley, is closely watching technological innovations in the U.S. and has assigned American executives to monitor U.S. businesses full time to evaluate investment destinations. He believes U.S. economic growth will "accelerate again" under Trump. The U.S. is likely to become a country with various business opportunities as the Trump administration will carry out deregulation in a variety of fields, he said.

Heartily welcoming Son's decision, Trump tweeted, "Masa said he would never do this had we (Trump) not won the election," and boasted that his election victory will lead to large-scale corporate investments and the creation of jobs.

SoftBank made its last big bet in the U.S. back in 2013, initially spending $21.6 billion to buy mobile carrier Sprint Nextel (now Sprint) as a springboard for launching a pursuit of rival T-Mobile US. But objections from the Federal Communications Commission left the tech giant's plans for bundling the carriers up in the air.

A frantic Son used connections with such figures as former Google CEO Eric Schmidt and U.S. Ambassador to Japan Caroline Kennedy to finagle a meeting with U.S. President Barack Obama. But this direct appeal to the top failed to move regulators, forcing Son to go so far as to consider unloading Sprint. The company gave up on T-Mobile in 2014.

Son's comment that SoftBank will invest in the U.S. again could be interpreted as hinting at plans to take another crack at the acquisition. The transfer of power in Washington next year will almost certainly mean the departure of FCC Chairman Tom Wheeler, making way for a successor possibly more amenable to a deal.

Son's generous investment seems to be intended to grease the wheels and ensure that his efforts do not end in failure again. While no breakdown of the $50 billion has been provided, capital spending by Sprint is expected to account for about half. The promised startup funding will come from the investment vehicle SoftBank is planning with the Saudi government. The company will thus not need to reach far into its own pockets to get on Trump's good side.

Presentation materials provided by Son to Trump also bore the Foxconn logo. The Taiwanese contract electronics manufacturer, formally Hon Hai Precision Industry, issued a statement confirming preliminary talks regarding a potential investment in the U.S. The specifics of any plans will be announced after direct discussions with U.S. officials, it said.

Trump is not the only VIP Son has approached to break down obstacles to expansion.

In October 2014, Son met Indian Prime Minister Narendra Modi and revealed a plan to invest 1 trillion yen ($8.6 billion) in India in the next decade. The announcement came while Son was visiting the country. In addition, SoftBank announced it would invest 70 billion yen in leading Indian online retailer Snapdeal and become its largest shareholder.

When he bought ARM Holdings, Son spoke with British Prime Minister Theresa May, who is trying to steer a turbulent U.K. through its planned exit from the European Union. He pledged to double ARM's British workforce within five years. Son met in September with President Park Geun-hye of South Korea, promising to invest 5 trillion won ($4.28 billion) there over the next decade.

Whether such tactics will work with Trump remains unclear. The president-elect has shown an isolationist bent on economic policy, including vowing to pull out of the Trans-Pacific Partnership and lambasting other trade deals. He may not be willing to let a Japanese company threaten an American duopoly in telecommunications, an area with significance to national security.

SHARE SURGE The market is positive about the move. SoftBank Group shares surged following Son's meeting with Trump, while trend-chasing retail investors are pleased by investment plans. Its shares rose 8% during trading on Dec. 8 to 7,970 yen -- the highest level since December 2014. The stock ended up at 7,782 yen on Dec. 12.

SoftBank has already performed well in 2016, logging 27% share-price growth as an overhaul at Sprint has progressed. The U.S. carrier is now in the black on an operating basis, and its customer base has begun to grow. Sprint picked up around $21 billion in market capitalization -- a windfall for SoftBank, which holds 80% of the carrier's shares.

A successful merger of Sprint and T-Mobile "could put the brakes on price competition in the cellphone market," said Satoru Kikuchi of SMBC Nikko Securities. Many hope that will happen, boosting Sprint's earning power.

But others, particularly institutional investors, are more cautious. "A talk with Trump alone does not change our assessment of SoftBank," said Fumio Matsumoto of Dalton Capital (Japan).

"Medium- to long-term investors don't follow the crowd when shares suddenly surge -- they sell," a Daiwa Securities trader said. Some analysts have set their SoftBank share-price targets around 9,500 yen in expectation of longer-term growth. But the Son-Trump meeting has not yet spurred a rash of adviser upgrades.

Now that SoftBank is well and truly linked with Trump in investor minds, the stock stands to rise and fall as the incoming administration's specific policy plans become clear. Many individual SoftBank investors are buying on margin, heightening the risk of a price downswing as markets adjust to the latest boom. Volatility is expected to persist until at least Jan. 20, when the president-elect is sworn in.

Nikkei staff writer Hirofumi Takeuchi contributed to this story.

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