Elliott Management builds big SoftBank stake

Elliott Management has quietly built up a more than $3.7bn stake in Japan’s SoftBank and is pushing for changes.

Softbank CEO Masayoshi Son’s management style concerns some investors Picture: AFP

Elliott Management has quietly built up a more than $US2.5bn ($3.7bn) stake in Japan’s SoftBank and is pushing the sprawling technology giant to make changes that would boost its share price.

Founded by billionaire Paul Singer, New York-based Elliott is known as a formidable activist investor, often seeking to influence company management. SoftBank is one of Elliott’s largest bets. At current prices, the investment would be equivalent to about 3 per cent of SoftBank’s market value.

Top Elliott staff have met with SoftBank founder Masayoshi Son. They also have met with his deputies including Yoshimitsu Goto, the chief financial officer, and ­Vision Fund head Rajeev Misra, sources say. So far, discussions ­between the two companies have been co-operative, they say.

The discussions with the company’s leadership have focused on ways to improve its corporate governance. This includes a call for more transparency and better management of investment decisions at its $US100bn Vision Fund. Elliott has pushed for SoftBank to buy back $US10bn-$US20bn in shares and help close a yawning gap between the company’s market value and the value of stakes in companies it has invested in.

SoftBank is one of the world’s biggest and most influential technology players. It is the largest shareholder in Chinese internet giant Alibaba and, through its ­Vision Fund, has put money into dozens of prominent tech companies, including Uber, Slack and microchip maker Arm Holdings. It is the majority shareholder in US mobile phone company Sprint.

But Mr Son’s freewheeling investing style has been under extra scrutiny since the implosion of ­office-sharing company WeWork’s public offering last year, which forced SoftBank to write down the value of its and the ­Vision Fund’s stakes by $US4.7bn and $US3.5bn, respectively.

SoftBank reported its biggest quarterly loss in its 38-year history in November.

Elliott is partly attracted to SoftBank because of its beleaguered share price, which is at a steep discount to the value of all the company’s holdings. Investors say the discount reflects wariness over Mr Son’s high-risk, debt-laden technology bets. SoftBank’s market capitalisation as of Thursday was $US89bn, while the value of its stakes in Alibaba, Sprint and its Japanese telecom business alone were worth roughly a combined $US210bn.

Mr Son famously makes investment decisions in a matter of minutes based in part on his ability to “feel the force” in assessing a company or its founder.

At the same time, Mr Son has acknowledged mistakes, calling his judgment on WeWork “really bad” at a November 2019 news conference, and pledging to improve governance of portfolio companies and its share price.

Elliott’s move comes at a sensitive time for SoftBank, which is struggling to raise a second tech fund. The company said last year it could raise $US108bn, but commitments have fallen short and SoftBank has launched the fund with its own money.

Elliott had weighed a SoftBank strategy internally for more than a year, believing that strategic changes at the company could dramatically increase its share price, an insider said.

The hedge fund firm has invested in SoftBank on and off for more than a decade, insiders say. The WeWork debacle inspired ­Elliott to increase its stake and ­engage more with SoftBank ­management. Elliott oversees $US40bn in investments, often using shareholdings in companies to push management onto a new track in a bid to boost their share price. If a target company’s management doesn’t acquiesce, the fund can become more aggressive, taking its concerns public or using other tools to pressure it.

SoftBank has an 11-member, all-male board, with only two independent directors. Tadashi Yanai, founder and CEO of Uni­qlo parent company Fast Retailing, resigned as an independent board member of SoftBank after an 18-year stint in December. Mr Yanai, a fellow billionaire, was a rare dissenting voice against some of Mr Son’s ideas and sources said his exit was a blow to the company’s governance.

Mr Son’s 22 per cent personal stake in SoftBank, as disclosed in September 2019, is a powerful weapon to fight back any activist campaign because major decisions at the company require votes from two-thirds of shareholders.