SoftBank shares soar after plan to raise $41 billion to expand share buyback unveiled

The buyback tops the $20 billion in purchases sought by activist hedge fund Elliott Management.

SoftBank Group Corp said on Monday that it is selling or monetizing up to 4.5 trillion yen ($41 billion) in assets to buy back 2 trillion yen of its shares and reduce debt, sending its stock soaring to its biggest daily gain in nearly 12 years.

The share buyback will be in addition to the up to 500 billion yen buyback announced earlier this month, in the Japanese tech conglomerate's biggest ever repurchase. The buyback tops the $20 billion in purchases sought by activist hedge fund Elliott Management, which has put pressure on SoftBank to improve shareholder returns, and will see the company retire 45 percent of its shares.

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Feeling the corona pinch

The asset sales come during a growing financial squeeze on SoftBank and its $100 billion Vision Fund, which has recorded two consecutive quarters of losses as its tech bets fall short, with global economic growth sputtering due to the coronavirus pandemic.

SoftBank's share price extended early gains on Monday, closing up almost 19 percent following the announcement of the asset sales, which will be executed over the next four quarters. SoftBank did not specify what would be sold. SoftBank's share price has been hammered by investor skepticism over the outlook for CEO Masayoshi Son's bets on startups like WeWork and Uber.

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Its plans to fund the initial 500 billion yen buyback with debt was received negatively by analysts and investors who were concerned by Son's willingness to leverage the company. Beyond the share buyback, proceeds will be used for repaying debt, buying back bonds and boosting cash reserves, reflecting Son's "firm and unwavering confidence" in the business, it said in a statement.

Wakeup call for investors

Given fragile markets SoftBank may look to monetize its stakes in the merged Sprint and T-Mobile US or Chinese e-commerce giant Alibaba, Redex Holdings analyst Kirk Boodry said. Son previously offloaded part of the stake in Alibaba, of which SoftBank currently owns 25 percent, in a complicated transaction ahead of the 2016 purchase of chip designer Arm.

The asset sales come as SoftBank's conglomerate discount, or the difference between its market capitalization and the value of its assets, last week yawned to a record 73 percent.

"That's a wakeup call that investors are really worried," Boodry said, overriding Son's previous reticence to sell down his portfolio. High on the list of pressing problems is a fight brewing over a major soured bet, co-working startup WeWork, as SoftBank eyes pulling out of a $3 billion bid to buy additional shares.

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