By Phred Dvorak
Over the past six months, technology investor SoftBank Group Corp. has signed more than $90 billion in deals to sell some of its most valuable holdings -- most recently, U.K. chip designer Arm Holdings.
Now the big question is: What will the Japanese conglomerate do with all that money?
SoftBank has committed to spend about half the sum to buy back its own shares and pay down debt, and it has said it needs lots of extra cash to bolster its balance sheet in uncertain times.
But given the propensity of SoftBank and its ebullient founder Masayoshi Son for making bold bets, analysts and investors suspect some type of deal could be in the offing. Among the rumblings: more investments in tech startups, or a bid by management to take SoftBank private in what would be by far the biggest buyout in history.
"Money burns a hole in their pocket," said David Gibson, an analyst at Astris Advisory Japan. Mr. Son is "not going to sit there with cash. He's an acquisitive guy."
Once the coronavirus pandemic has subsided, SoftBank might think of using its surplus money for further investments as well as more share buybacks, but until then the company is keeping ample cash on hand in case subsequent waves of infections occur, a person familiar with the company's strategy said.
SoftBank leaders regularly weigh taking the company private and did so again recently, but there aren't any plans for a leveraged buyout right now, company executives told analysts and investors on Monday, people familiar with the matter said. SoftBank Group shares are listed on the Tokyo Stock Exchange and rose 9% in Monday trading after it announced the Arm sale to Nvidia Corp.
A deal would set records for size and amount of debt, making one unlikely at least until the company completes its asset sales and buys back more shares to make the size manageable. That could take well over a year, said a person familiar with the company, and would still depend on lenders willing to finance a chief executive who embraces big risks
The cash pile is a significant achievement for SoftBank, which half a year ago was struggling with a stock price in free fall and billions of dollars in write-downs on investments that turned sour, such as in U.S. office-share company WeWork. The company's $100 billion venture-capital pool, called the Vision Fund, at one point earlier this year fell into the red.
Mr. Son vowed to turn things around by selling some of Softbank's holdings in tech companies such as Alibaba Group Holding Ltd. and using the money to buy back SoftBank shares and pay down debt.
Initially, Arm, the chip-design company that SoftBank bought for $32 billion in 2016, wasn't necessarily seen as a sale target. SoftBank had said it was thinking of relisting Arm by 2023.
Including the Arm deal, SoftBank has announced around $93.6 billion in asset sales, although not all of the money is available now and not all the proceeds will be in cash.
SoftBank and the Vision Fund would get as much as $15 billion in cash and a further $21.5 billion in Nvidia stock assuming the Arm deal goes through, although it faces regulatory hurdles and isn't expected to close until March 2022. SoftBank owns three-quarters of Arm, and the Vision Fund, in which SoftBank has a big stake along with the sovereign-wealth funds of Saudi Arabia and Abu Dhabi, owns a quarter.
In addition, SoftBank is offering a $11.6 billion chunk of its Japanese mobile-phone unit to investors this week. SoftBank has said that the sale is to strengthen its cash reserves so it can respond to the coronavirus pandemic.
Another pool of cash, $42 billion from the sale of stakes in companies such as Alibaba and U.S. carrier T-Mobile US Inc., is already earmarked for share and debt buybacks. But SoftBank has pushed back its timetable for execution past its original deadline of March 2021, and is already using some of the money for trading in tech stocks. Some of those trades, involving the purchase of options that confer the right to buy stocks at a later date, have been so big that they contributed to a surge in U.S. markets.
SoftBank could use its billions to continue investing in tech startups, as it has done with the Vision Fund. The company at the end of last year launched a successor fund that has spent around $2 billion so far on seven investments.
Some investors and analysts also say that a management buyout for the company is possible, although hefty given SoftBank's current market value of roughly $126 billion. Mr. Son already owns around 27% of SoftBank, either directly or through other holding vehicles, according to Japanese regulatory filings, lessening the number of shares a management-led group would have to buy to take control, particularly after further buybacks.
Japanese interest rates are ultralow, pushing down financing costs, and there are plenty of big private-equity funds or investors flush with cash and looking for places to spend it, say industry watchers.
And Mr. Son has never shied away from piling on leverage. SoftBank borrowed more than five times the amount of capital it invested when it bought U.S. mobile company Sprint in 2013. SoftBank sold Sprint to rival T-Mobile, then unloaded most of its stake in the merged company as part of this year's asset sales.
SoftBank is also trading at less than the value of its assets, which the company estimated to be worth around $259 billion as of mid-August. That would make any deal to take the company private attractive.
But analysts say that Mr. Son is unlikely to want to cede much control to a private-equity firm, a common requirement in take-private deals. And he thrives on the attention that being chief executive of a publicly listed company brings, they say.
A source of cash for a deal could be from large sovereign-wealth funds such as those from Saudi Arabia and Abu Dhabi that invested in the Vision Fund. But losses in the fund have frustrated investors, including Saudi Crown Prince Mohammed bin Salman, making new cash unlikely.
Write to Phred Dvorak at email@example.com