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SoftBank's stock market discount is here to stay

SoftBank's big stock market discount is here to stay. Investors now value Masayoshi Son's telco-to-tech conglomerate at much less than the sum of its parts. Following Alibaba's initial public offering, most of SoftBank's worth is tied up in stakes of companies listed elsewhere.

Start by looking at the Japanese group's holdings of public companies. Its stakes in Alibaba, mobile carrier Sprint, internet portal Yahoo Japan, and online games maker GungHo Online Entertainment are currently worth around $78 billion.

Next, apply the trailing industry average multiple of six times EBITDA to SoftBank's Japanese telecom operations and strip out debt. On that measure its domestic businesses are worth another $17 billion.

Yet SoftBank's market capitalisation is $61 billion - 36 per cent below the $95 billion combined value of its holdings. That's more than double the haircut investors applied to the sum of SoftBank's parts before Alibaba listed in New York last year.

Son has previously expressed his frustration with investors' reluctance to give him full credit for an empire he describes as a goose that can lay golden eggs. Just look at Alibaba: a $20 million investment into the Chinese e-commerce group in 2000 is now worth $52 billion.

SoftBank has recently been throwing cash at Asian startups including taxi-hailing apps and online retailers. The group now has over 1,300-odd investments in mobile internet companies, yet investors appear to attach little or no value to most of them.

One possibility would be to sell or spin off the company's listed stakes. But any large disposals would be below market price and incur capital gains taxes. Besides, a break-up is hardly compatible with Son's mission to make SoftBank the world's largest internet group.

A more radical idea is to take the company private, a move Son apparently considered earlier this year, according to Bloomberg. Yet assuming a modest 20 per cent takeover premium - and after subtracting Son's 19.3 per cent shareholding - a buyout would still require almost $60 billion in equity and debt financing.

Son is bold, but finding funding for what would be the largest leveraged buyout would be a step too far. The billionaire may just have to get used to an investor markdown.