Investing in SoftBank a bet on Masayoshi Son's deal-making prowess

There's no doubt that Masayoshi Son has made some of the most profitable bets in the history of the tech industry

For most of its existence, SoftBank was known as a Japanese phone company that made some lucky bets. But in the future, being an investor in the company will mean betting on the investment prowess of its founder, Masayoshi Son.

Over the past few months, SoftBank has moved to drastically shrink itself. In April, it struck a deal to combine Sprint, which it controls, with T-Mobile, reducing its share of the embattled American carrier’s financial burden. It announced plans this week to spin out its domestic telecom business.

If those deals go through, what will be left of the company is essentially a gigantic, publicly traded venture capital firm. Its holdings would include:

• A 27 per cent stake in Alibaba Group, the Chinese internet behemoth
• A 43 per cent stake in Yahoo! Japan
• A stake in ARM, the British designer of computer chips
• An investment in its nearly $100 billion Vision Fund, the much-ballyhooed tech investment vehicle that owns stakes in Uber and much more

But SoftBank shares currently trade at a steep discount compared with the sum of those parts. The hedge fund Tiger Global Management recently calculated that SoftBank’s net asset value is $190 billion. SoftBank’s entire market capitalisation as of Friday is about $94 billion.

SoftBank’s stake in Alibaba alone is now worth nearly $132 billion, or 40 per cent more than SoftBank’s market cap. But its stock price hasn’t moved in lock step with the internet company in the way you might have expected it to. In fact, it hasn’t moved much in years.

It makes sense for SoftBank’s stake to be valued at a discount: The entire investment can’t be easily sold in one go. But the gap appears to be too steep, given all of its other assets.

To solve the valuation gap, Son is doubling down on deal-making. By spinning out SoftBank’s domestic telecom division, he is letting that business trade on its own merits. But he is also betting that investors in SoftBank believe in his continued ability to make savvy investments.

There’s no doubt that he has made some of the most profitable bets in the history of the tech industry. SoftBank’s $100 million investment in Alibaba mushroomed to almost $132 billion. Its $70 million stake in Yahoo! Japan grew into an $8 billion holding. 

Son’s luck isn’t guaranteed to continue. His Vision Fund is his vehicle for investing in technologies that he thinks will define the future, and it has bought big stakes in promising start-ups like Uber and the messaging service Slack. But it has also made much more speculative bets that have left some people in Silicon Valley scratching their heads — from the co-working space firm WeWork to the indoor farming start-up Plenty to the dog-walking app Wag.

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