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

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.

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”.

Recommended

Think Tesla is a bubble? This might be the best way to bet on it bursting
Oil

Think Tesla is a bubble? This might be the best way to bet on it bursting

The huge rise in Tesla’s share price means that, by market value, it’s now the sixth-largest company in the US and and the world’s biggest car-maker. …
25 Jan 2021
Three clean energy stocks for your portfolio
Share tips

Three clean energy stocks for your portfolio

Professional investor Christian Roessing of the Pictet Clean Energy Fund highlights of his three favourite stocks at the forefront of the clean energy…
25 Jan 2021
The MoneyWeek Podcast: let's talk about bubbles
Stockmarkets

The MoneyWeek Podcast: let's talk about bubbles

Merryn and John talk about the many obvious signs of a bubble in certain assets, including tech stocks, TikTok, and stock-trading 12-year olds. It's c…
22 Jan 2021
Eternal growth: how to invest in the future of the drinks industry
Share tips

Eternal growth: how to invest in the future of the drinks industry

Humans have been dabbling in tasty beverages for millennia. Jonathan Compton assesses the key trends in the sector and recommends seven hard- and soft…
22 Jan 2021

Most Popular

Bitcoin does consume a lot of energy – but here’s why it’s worth it
Bitcoin

Bitcoin does consume a lot of energy – but here’s why it’s worth it

Some people question bitcoin’s legitimacy because it uses huge amounts of electricity to maintain its network. But that’s not a failing, says Dominic …
27 Jan 2021
Joe Biden’s spending spree will lift American spirits and markets – but it comes with a sting in the tail
US stockmarkets

Joe Biden’s spending spree will lift American spirits and markets – but it comes with a sting in the tail

New US president Joe Biden is planning to throw trillions of dollars in stimulus at his country’s economy. Markets will love that. But it comes with a…
25 Jan 2021
Think Tesla is a bubble? This might be the best way to bet on it bursting
Oil

Think Tesla is a bubble? This might be the best way to bet on it bursting

The huge rise in Tesla’s share price means that, by market value, it’s now the sixth-largest company in the US and and the world’s biggest car-maker. …
25 Jan 2021