SoftBank’s investment focus is on new technology. But legacy telecoms continue to bolster the fortunes of the Japanese investment group, as a big share deal on Tuesday illustrated. This has strengthened prospects for share buybacks, lifting SoftBank’s stock by a tenth.
A share swap with Deutsche Telekom is not an immediate cause for rejoicing. Transacted under options agreements, it results in SoftBank forfeiting value relative to market prices.
The German group is giving SoftBank a 4.5 per cent stake consisting of 225m of its shares. In return, the Japanese tech investor is handing over 45m shares in Deutsche Telekom’s US subsidiary.
SoftBank is set to sell a further 20m T-Mobile shares for $2.4bn, which would also represent a discount to present market values. However, that handy slug of cash makes buybacks more likely.
The deals come as no surprise. Last year, SoftBank sold almost two-thirds of its stake in T-Mobile, then valued at around $21bn, with purchaser Deutsche Telekom receiving options to buy most of the balance later.
The earlier transaction marked the retreat of SoftBank founder Masayoshi Son from US telecoms. Regulators stymied his plans for US affiliate Sprint to buy T-Mobile, which instead absorbed its pursuer.
SoftBank has, meanwhile, been whittling down its stake in listed domestic Japanese telecoms operator SoftBank Corp. It sold a 5 per cent stake in the unit last year as part of asset sales. The unit was also used as collateral to borrow as much as $4.5bn.
SoftBank Corp has long languished behind peers NTT DoCoMo and KDDI, ranking in third place in market share. The industry hit rock bottom last year, when carriers slashed rates pre-emptively. Yoshihide Suga, the prime minister at the time, hinted at mobile phone fee cuts of 40 per cent or more. Suga has announced his resignation and shares of the mobile unit are up a fifth this year.
Legacy telecoms investments have helped support SoftBank during market troughs. Its stakes in SoftBank Corp and T-Mobile were worth more than the combined equity value of both its Vision Funds in June last year.
As SoftBank runs down its telecoms investments it becomes even more dependent on its stake in Chinese ecommerce group Alibaba. This makes up almost 40 per cent of equity value. Son must be aching for his fresher bets in new technology to work out as well.
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