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SoftBank put on spot by Yahoo! Japan exit

SoftBank's search for value just got trickier. The conglomerate is the natural buyer of Yahoo! Japan should US portal Yahoo! Inc offload its 35.5 per cent stake in the Tokyo-listed group. That would cost almost $8.8 billion at current market prices. But beefing up on a lacklustre business won't impress its own investors who are already struggling to see the value of SoftBank's many parts.

There is little to gain from increasing its investment. SoftBank already effectively controls Yahoo! Japan with a 42.9 per cent stake and consolidates its results. SoftBank chairman and chief executive Masayoshi Son has been the chairman of Yahoo! Japan for almost two decades. The shareholding is one of the several that the Japanese group holds in large listed entities including a 36.7 per cent stake in China's Alibaba, and nearly 80 per cent stake in US mobile carrier Sprint.

Yahoo! Japan is not a compelling acquisition target. The group's net profit margin is around four times fatter than parent SoftBank but is gradually being eroded away, according to Eikon. Yahoo! Japan faces particularly aggressive competition in e-commerce where it is trying to grow from incumbents Amazon and Rakuten. That also makes it unlikely that Yahoo! Japan will use its $4-billion net cash pile as part funding to buy back the stake in itself. The main worry for Son would be that a rival could acquire the shares.

If no buyers are forthcoming, Yahoo! may simply heed the call of its investors and spin-off the stake into a separately-listed entity along the lines of what it already plans to do with its shareholding in Alibaba. That would create a situation where two of SoftBank's largest assets are listed separately not once but twice. SoftBank's shareholdings in Alibaba and Yahoo! Japan have a current value equivalent almost to its own entire market value of $78 billion. SoftBank trades at a 28 per cent discount to its net asset value, according to CLSA.

The likelihood is that Yahoo!'s search for an exit from Japan will put SoftBank on the spot. The pressure will increase for it to explain how these stakes create value or put its capital to better use elsewhere.