SoftBank is cutting its Alibaba stake, which contributes to a 55% conglomerate discount. That would be narrowed further by spinning off Arm and selling more of its Japanese telco, writes LiamWardProud.
The same focus on cash preservation seems to have informed the decisionto cut the Alibaba holding, which has a totemic significance at SoftBank as one of the world’s most lucrative tech investments. Through derivatives deals with banks, Son could have retained the Alibaba stake by settling so-called prepaid forward contracts in cash. Instead, he handed over the shares. SoftBank is dramatically reducing its position to “eliminate concerns about future cash outflows”.It's the sensible move.
The same can be said of selling down ownership of SoftBank’s eponymous Japanese mobile operator, which was worth $18 billion in June after deducting the parent company’s margin loan, and a $7 billion T-Mobile US holding. Spinning off chip designer Arm, rather than pursuing plans to list a small stake, would likewise simplify the group and lift its valuation. What’s left would be the Vision Funds, making SoftBank a way for public-market investors mainly to gain exposure to Son’s hodgepodge of private tech outfits.
It may not look so appealing under the current circumstances, but at least SoftBank would have a clear purpose. The Alibaba sale could be the first step in breaking some destructive taboos.SoftBank Group on Aug. 10 said it would settle derivatives contracts held against its Alibaba stake by handing a chunk of the shares to banks. The move effectively cuts its stake in the Chinese e-commerce company to 14.6% from 23.7%.
The technology conglomerate controlled by billionaire Masayoshi Son said that settling the contracts early in the form of shares would “eliminate concerns about future cash outflows, and furthermore, reduce costs associated with these prepaid forward contracts”.Editing by Jeffrey Goldfarb and Amanda Gomez
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