Elliott rebuilds stake in SoftBank and pushes for buybacks

Elliott Management has rebuilt a substantial stake in SoftBank and is pushing the Japanese tech conglomerate founded by Masayoshi Son to launch a $15bn share buyback.

The US-based activist fund’s position is worth more than $2bn and it has engaged directly with SoftBank’s senior management over the past two to three months, according to people familiar with the matter.

The fund has swooped on SoftBank at a time when the gap between the combined value of the company’s assets and its market valuation has never been wider. After a self-declared period in “defence mode”, SoftBank has a strong balance sheet and billions of cash on hand, which its founder wants to use in pursuit of artificial intelligence deals.

Son has built his current growth strategy around a roughly 90 per cent stake in UK chip designer Arm, whose surging stock market price has lifted SoftBank’s net asset value to a record $180bn. While the conglomerate’s shares have risen more than 50 per cent this year, its current market capitalisation stands at around $90bn. Its shares jumped as much as 5.5 per cent on the news of Elliott’s stakebuilding, in late trading in Tokyo on Wednesday.

According to people familiar with the demands being made by Elliott, the activist fund believes that a $15bn share buyback will deliver an immediate boost to the share price and act as a sign of Son’s confidence in his strategy.

Elliott’s investment is the second time it has targeted Son’s company and is the fund’s latest strike in the Japanese stock market. It previously took a position in Toshiba and holds a large stake in Dai Nippon Printing, the trading house Sumitomo Corporation and the country’s largest listed real estate developer, Mitsui Fudosan.

The firm’s last investment in SoftBank involved building a stake of about $2.5bn in early 2020, while pressing for a $20bn share buyback and governance changes. It had a similar focus on the substantial discount between the value of SoftBank’s asset portfolio and its market capitalisation.

At the time, SoftBank’s investments had a different shape — with a 25 per cent stake in ecommerce giant Alibaba and a heavy focus on high-risk private market investments made by its $100bn Vision Fund. 

Today, SoftBank is built around Arm, with its two Vision Funds increasingly focused on returning cash and a greater proportion of investments publicly listed.

The group’s loan-to-value ratio — net debt as a proportion of the value of its holdings — has also dropped to 8.4 per cent, a level that group chief financial officer Yoshimitsu Goto described in May as “maybe too low to be honest, too safe” and compares with over 20 per cent at the end of 2021.

Elliott had almost completely sold down its stake in SoftBank by early 2022, after it lost confidence in Son’s ability to close the valuation gap, according to people familiar with the situation at that time. 

However, in 2020, SoftBank did embark on a ¥4.5tn — then worth $41bn — plan to dispose of assets and launched a ¥2.5tn share buyback programme while Elliott held its stake.

The firm’s position is being led by London-based Elliott senior portfolio manager Nabeel Bhanji, who was behind the previous Elliott stakebuilding and has been instrumental in the group’s investments in Tokyo, including at Toshiba where he joined the board.

Elliott and SoftBank declined to comment.