Feb 7, 2020 - Economy & Business

Activist investor Elliott Management knocks on SoftBank's gates

Dan Primack, author of Pro Rata

Photo Illustration: Sarah Grillo/Axios. Photo: David A. Grogan/CNBC/NBCU Photo Bank/NBCUniversal via Getty Images

Activist investor Elliott Management has acquired around a $2.5 billion stake in SoftBank Group, saying the market "significantly undervalues" the Japanese group's assets.

The state of play: So far the relationship appears to be friendly, but Elliott isn't shy about getting into the mud if that's where it feels the most profit lies.

  • Singer vs. Son would be the investment world's version of Ali-Frazier.

Why it matters: Sources say that Elliott wants SoftBank to buy back around $20 billion worth of its stock, believing it trades at around a 60% discount to net asset value.

  • This puts pressure on SoftBank to partially liquidate its larger holdings, such as its 25% stake in Alibaba Group.
  • It also could slow Vision Fund 2 investments until SoftBank holds at least a first close on third-party commitments (or has enough Vision Fund 1 proceeds to recycle). In short, Elliott would prefer SoftBank spend its balance sheet cash on stock buybacks, not on private company investments.

What Elliott is saying: "Elliott has engaged privately with SoftBank’s leadership and is working constructively on solutions to help SoftBank materially and sustainably reduce its discount to intrinsic value."

What SoftBank is saying: "SoftBank always maintains constructive discussions with shareholders regarding their views on the Company and we are in complete agreement that our shares are deeply undervalued by public investors. SoftBank welcomes feedback from fellow shareholders."

  • This is the largest investment Elliott has ever made in a Japanese company.
  • Elliott bought at a particularly tricky moment for SoftBank. Not only because of questions surrounding Vision Fund 2, but also because its planned Sprint sale rests in the hands of a U.S. court.
  • SoftBank's market cap rose from around $89 billion to $95 billion on the news.

The big question is how an activist hedge fund, which thinks in months and years, deals with a company that claims to think in centuries.

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