Daily Management Review

17% Increase In Softbank Shares Following Its $7.4b Buyback Announcement


02/07/2019




In what is being seen as an effort by SoftBank founder Masayoshi Son bridge to what he believes is the gap between the actual value of the company and the market value of the company, the Japanese investment firm has announced a share buyback worth as much as 600 billion yen. This announcement resulted in the shares of the company reaching their highest in a decade with a 17 per cent jump. This is also viewed as a change in the focus and strategy of Son to invest in tech companies and start-ups.
 
The buyback program would be financed by the money that the company raised from its initial public offering launch worth 2.4 trillion yen initial public of its telecommunications units in December last year.  The increase in the stocks of the company is the largest for the company since November of 2008.
 
"This latest buyback changes the equation and puts a floor under SoftBank stock," Atul Goyal, an analyst at Jefferies Group, wrote said in a report.
 
On Wednesday, while explaining the share buyback decision by the company, Son claimed that the total holdings of SoftBank was to the tune of 21 trillion yen net of debt, and at the same time the firm carried a market value of just 9 trillion yen. This gap has even been described in the company’s corporate website and it showed that stock trading at a 50 per cent discount to a sum-of-the-parts calculation that includes the telecoms unit, Alibaba Group Holding, US carrier Sprint Corp and Yahoo Japan Corp.
 
"What is that gap all about? Isn't that weird?" Son said at the briefing. "I personally think the share price is too low."
 
More than twice that amount was added by the 600 billion yen buyback to the stock value of the company. The market capitalization of the company increased by about 1.9 trillion yen, to reach 11 trillion yen.
 
SoftBank has previously held successful buybacks. Shares worth as much as 500 billion yen were announced to be bought back by the Japanese firm in 2016 which had also resulted in a significant increase in its stocks. The price doubled over the next year.
 
Son said that out of the amount that the company raised through the IPO of its telecom unit, it would expend 600 billion yen for the share buyback, 700 billion yen would be invested and 700 billion yen would be used for debt repayment.
 
"The share repurchase fits perfectly with the goal of boosting the company's valuation," said Naoki Fujiwara, chief fund manager at Shinkin Asset Management.
 
SoftBank said, all of the shares that the firm’s Vision Fund held in US graphics chipmaker Nvidia Corp, valued at 398 billion yen, was sold by the company in January. Reports about the possibility of sale of the shares first came out in the public in December through sources. A net loss of 50 billion yen on the stocks was incurred by SoftBank in the three quarters before the sale.
 
(Source:www.thedtraittimes.com)






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