SoftBank Shareholders Criticize Company After WeWork Wipeout
November 26 2019 - 5:59AM
Dow Jones News
By Liz Hoffman and Phred Dvorak
SoftBank Group Corp.'s biggest investors are putting pressure on
the tech conglomerate over its governance and for a string of bad
investments in its $100 billion investment fund.
Investors including Capital Group, hedge fund Tiger Global
Management LLC and Southeastern Asset Management Inc. have
privately criticized the company over losses in the Vision Fund in
recent weeks, people familiar with the matter said.
The investors have also criticized SoftBank's plan to help raise
cash for a second Vision Fund by lending billions of dollars to its
own executives, the people said. The Wall Street Journal reported
in August that SoftBank planned to lend up to $20 billion to Chief
Executive Masayoshi Son and other top executives to invest in the
fund, helping a fundraising effort that has stalled.
In conversations with SoftBank executives and investor-relations
staff, those shareholders and others -- including AllianceBernstein
LP and Odey Asset Management -- have criticized the loans as risky
and said they could create conflicts of interest between the
executives and investors. In addition to Mr. Son, the borrowers
include several SoftBank board members who also hold senior roles
at the Vision Fund. The company hasn't disclosed details of the
arrangement to investors.
SoftBank declined to comment on its conversations with
shareholders. Mr. Son has said he is aware of the skepticism toward
his company's stock. In recent quarters he has started out each
earnings press conference by saying the group's revenue and profit
figures are meaningless, and emphasizes more positive numbers such
as the value SoftBank has created for its shareholders, measured by
the value of its equity holdings minus debt.
Capital Group -- one of SoftBank's largest shareholders with a
2% stake as of Sept. 30 -- and AllianceBernstein have told SoftBank
executives that Mr. Son shouldn't participate in the loan program,
people familiar with the matter said. Some investors shared their
concerns during meetings with Mr. Son and Navneet Govil, the Vision
Fund's finance chief, at the company's quarterly earnings
presentation last month, some of the people said.
Shareholders have long had doubts about SoftBank as it morphs
from a mobile phone carrier to a technology-investment company with
stakes in Alibaba Group Holding Ltd. as well as dozens of startups
including Uber Technologies Inc. and its Chinese peer Didi Chuxing
Technology Co.
SoftBank invested $25 billion in the Vision Fund and raised the
rest from outside investors. The fund is now in trouble, writing
down its bets on WeWork, Uber, Slack Technologies Inc. and smaller
startups including dog-walking app Wag, home-goods retailer
Brandless and robotic-pizza maker Zume.
The Vision Fund reported an $8.8 billion loss in SoftBank's most
recent quarter, which ended Sept. 30. The fund's value is still up
since its 2017 launch, but much of the 29% cumulative gains it
reported in March has been lost, people familiar with the matter
said.
SoftBank's shares have fallen 30% since late July. Several
brokerages have lowered their target prices for SoftBank shares,
but many still have "buy" ratings on the stock.
Many value-oriented funds, who try to buy shares on the cheap,
invested in SoftBank because its shares are worth just $80 billion,
far below the value of the company's assets. SoftBank's stake in
Alibaba alone is worth $125 billion.
Companies that trade below the value of their assets can be
vulnerable to a shareholder revolt or an activist investor, though
SoftBank is insulated somewhat by Mr. Son's 25% ownership
stake.
A spokesman for Southeastern -- which has waged activist
campaigns before -- declined to comment, as did representatives for
Capital, Tiger, AllianceBernstein and Odey.
Despite writing down its bet on WeWork, SoftBank's shareholder
value actually grew by 1.4 trillion yen ($13 billion) to 22.4
trillion yen during the quarter ended September -- largely because
of an appreciation in Alibaba shares, Mr. Son said. The big losses
at the Vision Fund -- including a write-down in the value of Uber
shares -- comprised only about 1.3% of that total shareholder
value, he said.
"I know if I explain things this way plenty of people will say,
there's Son just picking the good parts to talk about again," Mr.
Son said at the company's earnings press conference in early
November. "But it's a fact."
Write to Liz Hoffman at liz.hoffman@wsj.com and Phred Dvorak at
phred.dvorak@wsj.com
(END) Dow Jones Newswires
November 26, 2019 05:44 ET (10:44 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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