SoftBank stock surges 14% after Sprint sale wins approval

Tokyo

MASAYOSHI Son is finally getting some good news.

After a punishing year, the founder of SoftBank Group won approval for the sale of his telecommunications firm Sprint to T-Mobile, a long-delayed acquisition that had been fiercely opposed by states including New York and California.

The deal would extract the Japanese billionaire from the cash-draining US wireless business and remove about US$40 billion in net debt from his balance sheet. Sprint shares rose 78 per cent in US trading Tuesday after a federal court approved the deal, and SoftBank's stock surged 14 per cent in Tokyo.

Mr Son has been struggling to regain his footing after the meltdown at WeWork last year. Following the co-working startup's failed initial public offering, he suffered setbacks at portfolio companies, including Wag Labs, Zume Pizza and Brandless Inc. The US activist investor Elliott Management just took a stake in SoftBank, arguing its shares were undervalued.

The Sprint sale helps Mr Son in several ways. SoftBank will no longer face the risk of having to fund the wireless operator, a huge debt load will move off its balance sheet, and he will have more flexibility in raising capital for a share buyback or for his planned second US$100 billion investment fund. The SoftBank founder will also have something to talk up to investors when he reports financial results on Wednesday.

"This is obviously great news for Sprint," said Kirk Boodry, an analyst at Redex Holdings. "It is better news for SoftBank."

SoftBank shares' jump is the most in a year on an intraday basis, pushing the company's market value to more than US$110 billion. Mr Son's net worth rose more than US$2 billion to US$18.9 billion, going by Bloomberg Billionaires Index calculations.

The stock has gained about 20 per cent this year, including Wednesday's increase.

The terms of the T-Mobile deal are likely to be revised because the original deal has expired, Mr Boodry said, which means SoftBank may end up with a smaller stake in the combined company. But SoftBank will not be on the hook for what he estimates would be a potential US$5 billion to US$10 billion in capital investments. The two companies said they plan to close as soon as April 1.

SoftBank Group is expected to return to profitability in the December quarter after reporting a loss of more than 700 billion yen (S$8.82 billion) in the previous quarter, including the writedown at WeWork. Still, operating profit is projected to fall about 20 per cent to 345 million yen, according to estimates compiled by Bloomberg.

In recent years, Mr Son has overhauled his company to focus on startup investments and shift away from the more traditional telecom business. He set up the US$100 billion Vision Fund in 2017 with the goal of becoming the biggest investor in technology. He even sold a stake in his Japanese wireless operation to public shareholders so he could focus on deals. For several quarters, his performance seemed strong, as startup valuations rose and SoftBank regularly booked gains.

But Uber, one of SoftBank's biggest bets, stumbled as it went public last year. Then WeWork's valuation crashed from US$47 billion to less than US$8 billion. Public investors suddenly turned their backs on the fast-growing, money-losing startups that SoftBank had favoured.

In taking its stake, Elliott Management has urged SoftBank to buy back its shares because of their discount, arguing it could spend as much as US$20 billion by trimming investments in companies like Sprint and Alibaba Group. The New York hedge fund also wants SoftBank to boost the independence and diversity on its board and bring more transparency to its investment approach.

Mr Son is still determined to raise a second Vision Fund, originally targeting at least US$100 billion. His early backers are reconsidering their commitments. But SoftBank has weighed contributing US$40 billion to US$50 billion, people familiar with the matter have said.

With the Sprint sale heading for completion, the Japanese billionaire would have more flexibility with his finances. BLOOMBERG