Hedge fund Elliott builds $2.5bn SoftBank stake

Elliott Management, the hedge fund, has built a stake worth $2.5bn in SoftBank and is pressing for a $20bn share buyback and governance changes at Masayoshi Son’s sprawling technology conglomerate, people with direct knowledge of the matter said.

Elliott, a $38bn US activist fund, wants SoftBank to narrow the discount between the value of its shares and that of its portfolio of holdings, which includes majority stakes in Sprint, the US telecoms group, and Arm, the UK chip designer.

The push by Elliott is being led by Gordon Singer, the London-based son of the hedge fund’s founder, Paul Singer, whose firm is best known for its aggressive public campaigns against chief executives, companies and even the government of Argentina.

The news sent shares in SoftBank up more than 7 per cent on Friday.

Elliott has built its stake over the past several months and the firm has met with Mr Son, SoftBank’s founder and chairman, as well as with Rajeev Misra, the head of SoftBank’s $100bn Vision Fund, in recent weeks.

The revelation of Elliott’s stake comes at a sensitive time for SoftBank. Over the past year, a number of bets made by Mr Son, the risk-addicted billionaire behind SoftBank, have soured publicly in excruciating fashion.

Many of Mr Son’s high-profile bets, including Uber, Slack and, most notoriously, WeWork, are housed in the Vision Fund, an investment arm of SoftBank which is funded heavily by the governments of Saudi Arabia and Abu Dhabi.

Elliott believes that scrutiny of the Vision Fund’s troubled investments reflect only a fraction of the overall value of SoftBank’s overall portfolio and that the Japanese company’s share price is being unfairly discounted because of the negative attention, one person added.

Shares in SoftBank, which have fallen about 20 per cent from their highs last April, had a market value of $89bn before the start of trading in Tokyo on Friday morning.

Besides Sprint and Arm, the group’s holdings include a 25 per cent stake in China’s ecommerce group Alibaba, which alone is worth about $150bn.

This person added that Elliott wanted SoftBank to liquidate some of its holdings to fund the $20bn share buyback. It is also pushing for governance changes on SoftBank’s all-male board, which lacks a sizeable number of independent directors.

Elliott wants SoftBank to provide more transparency around the 88 companies in which it has invested through the Vision Fund, something that the Japanese group has so far provided limited public disclosure on.

Elliott said in a statement that it “has engaged privately with SoftBank’s leadership and is working constructively on solutions to help SoftBank materially and sustainably reduce its discount to intrinsic value.”

SoftBank said “it always maintains constructive discussions with shareholders regarding their views on the company and we are in complete agreement that our shares are deeply undervalued by public investors.”

Mr Son is SoftBank’s largest shareholder with a 25 per cent stake, making him a significant obstacle to any attempt to drive changes that do not align with his vision for the company that he founded in the early 1980s.

SoftBank’s balance sheet and those of its holdings are laden with vast amounts of debt. Analysts have suggested that this, and the unpredictable nature of Mr Son’s dealmaking, have contributed to the large discount in its share price.

The Financial Times reported this week that Michael Ronen, a senior US executive at the SoftBank Vision Fund, was leaving after expressing concerns about “issues” at the tech group.

SoftBank, which ranks as one of Elliott’s largest positions, is the latest Japanese corporate to be targeted by the hedge fund. As the largest shareholder in the property group Unizo, the fund has become embroiled in one of the country’s most contentious takeover battles.

The Wall Street Journal first reported on Elliott’s SoftBank stake.