SoftBank steadies the ship with asset disposals

Softbank looked to be in trouble a few months ago. But asset disposals and progress at WeWork have improved the outlook. Matthew Partridge reports

Softbank Group CEO Masayoshi Son
Masayoshi Son’s fortune has jumped to $20bn since March
(Image credit: © STR/JIJI PRESS/AFP via Getty Images)

Japanese technology conglomerate SoftBank Group Corporation is “exploring” either selling or floating British chip designer Arm Holdings, which it bought four years ago for $32bn, say Dana Cimilluca and Cara Lombardo in The Wall Street Journal. The review is at an “early stage”, so it is possible that SoftBank will “ultimately choose to do nothing”.

However, a sale would help it raise cash to “mollify” activist investor Elliott Management, which has been “agitating for changes at the company”. This money could be used to buy back its own shares, which trade at a “steep discount relative to net asset value”.

Good luck getting much cash for Arm Holdings, says Alec Macfarlane on Breakingviews. While SoftBank’s CEO, Masayoshi Son, once called Arm Holdings his “most important acquisition”, he may struggle to get buyers to feel the same way. Despite Arm Holdings splurging on research and development spending, making big acquisitions and going on a “hiring spree”, sales have failed to take off, growing by a “paltry” 2% in the fiscal year to March. Industry tracker IDC forecasts that shipments this year will decline by 12% amid Covid-19 disruptions, hinting at “further pain to come”. With rival chipmaker Intel trading at around three times historical sales, Arm Holdings could be worth as little as $6bn.

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Still, even if getting rid of it proves more difficult than expected, SoftBank may not need to sell it, since the conglomerate has already managed to sell a lot of assets over the past few months, say Arash Massoudi and Kana Inagaki in the Financial Times.

SoftBank managed to raise $23.2bn last month from selling its stake in the company created by the merger of Sprint with T-Mobile. SoftBank has also sold down its holdings in Chinese ecommerce group Alibaba, which has hit “record after record” this year. As a result, it is already 90% of the way towards its goal of raising $41bn.

WeWork is working better

Even SoftBank’s most controversial investment, shared-workspace provider WeWork, is looking better these days, says Catherine Shu on TechCrunch. Thanks to financial and management issues that led to the resignation of founder Adam Neumann, WeWork’s valuation plunged from as much as $47bn at the beginning of 2019 to $2.9bn in March, leading to an overall $24bn loss for SoftBank. However, thanks to “aggressive cost-cutting measures”, which have reduced WeWork’s headcount from 14,000 to 5,600, and the sale of several of its businesses, WeWork now expects positive cash flow in 2021.

No wonder, then, that SoftBank’s shares “have more than doubled from their March low”, increasing Son’s personal fortune to $20bn, says Bloomberg. The bounce could endure. Earnings are set to recover from last quarter’s “record loss”, while short-sellers are under pressure to “cover losing bets”.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri