SoftBank plans phone unit IPO

Son says the telecom biz will emphasise dividend payments and that he’s aiming for a listing within a year

by BLOOMBERG

TOKYOSoftBank Group Corp’s Masayoshi Son unveiled plans for an initial public offering (IPO) of his domestic telecom operation, signalling the evolution of his business empire and his increasing focus on investments in start-ups such as Uber Technologies Inc.

The separation of SoftBank’s activities, essentially into investing and telecommunications arms, will bring “greater clarity and thereby better respond to the various needs of investors”, the company said in a statement. Son said at a news conference the telecom business will emphasise dividend payments and that he’s aiming for a listing within a year.

Son has stepped up investments in technology companies over the past year, using cashflow from his telecom operations to take stakes in start-ups such as Uber, China’s Didi Chuxing and India’s Flipkart Online Services Pte Ltd. Yet, investors have given SoftBank little credit for those deals, as the company’s market capitalisation has lagged well below the value of its assets. Spinning off the mobile-phone unit may help close that gap, while raising capital and relieving some of the company’s debt burden.

“With the IPO of SoftBank’s Japan operations, the various parts of the company can continue to grow independently,” Son said. “This way I can also spend more time on longer-term global corporate strategy.”

SoftBank unveiled plans for the IPO as it reported earnings that fell short of estimates. Operating profit was ¥274 billion (RM9.86 billion) in the period ended December, the Tokyobased company said in a statement yesterday. That’s less than the ¥293 billion average of analysts’ projections compiled by Bloomberg. Sales came in at ¥2.4 trillion, beating predictions of ¥2.3 trillion.

Net income totalled ¥912 billion, well above estimates of ¥151 billion, in part because of Sprint Corp. The US wireless operator had deferred tax liabilities of ¥830 billion reversed due to changes to US tax code. Sprint also reported better than expected results in the most recent quarter, adding 256,000 net postpaid subscribers on all devices compared to an estimated increase of 234,000.

Earnings from SoftBank’s domestic operations may come under pressure as billionaire Hiroshi Mikitani’s Rakuten Inc plans to become the country’s fourth major mobile-phone operator. Son, whose acquisition of Vodafone’s Japan business in 2006 was the industry’s biggest shakeup in recent history, has said he welcomes the competition.

Earnings before interest and taxes at domestic telecom operations fell 3.1% to ¥964 billion in the nine-month period ended December, as the company offered discounts to bring in new users. The company has 33 million subscribers.

Son, who has said the information revolution is SoftBank’s core-business, has been shifting his focus to the company’s longer-term future and investments in overseas technology companies.

Last year, Son formed the Vision Fund, raising US$93 billion (RM363.63 billion) from big backers including Saudi Arabia and Apple Inc.

The SoftBank valuation gap has widened in recent months to the point its market capitalisation is less than half its holdings, worth at least US$180 billion. Indeed, SoftBank’s was little changed in the past year, while its stake in Alibaba Group Holding Ltd increased by about US$60 billion. SoftBank holds equity in Alibaba worth about ¥15 trillion, or 50% more than its own market value.

The Vision Fund contributed ¥236.4 billion to operating profit in the nine months ended December, the company said. The amount mainly reflects an unrealised gain on valuation of SoftBank’s investment in Nvidia Corp. The company took a stake of just less than 5% in the chipmaker last year. Nvidia’s stock rose 81% in 2017.

Son has said repeatedly he wants to build a company that can last for centuries. In his presentation to investors yesterday, Son said the phone unit IPO will help SoftBank move toward a structure that will help the company and its affiliates thrive well beyond his lifetime.

“This group strategy is something I had in mind since the very start,” Son said. “I set out to make a conglomeration of No. 1 companies. That’s easy to say, but difficult to do. I can’t think of anyone else who has done it.” — Bloomberg