Japanese conglomerate Softbank announced a share buyback programme worth ¥500 billion ($5 billion) on March 13, the first since Elliott Management, the US investment fund known for shareholder activism, acquired a near three percent position in early February. Softbank last repurchased shares worth ¥600 billion in February 2019.
While the $5 billion fell short of the $20 billion that Elliot Management had called for, Softbank was quick to emphasis this was a programme launched at its own discretion, rather than under any duress. “We [Softbank] decided on this policy for shareholder returns” Kenichi Yuasa, a SoftBank spokesman, said (and reiterated by a Softbank executive speaking anonymously to FinanceAsia).
The timing of Softbank’s announcement certainly didn’t do its stock price any immediate favours - shares dropped more 5% on the announcement’s day as equity markets continued to tailspin on the back of fears the covid-19 epidemic would trigger a global recession.
But the parameters of the repurchase programme capped shareholder optimism explains Eric Ritter, adjunct professor of economics for Lakeland University in Tokyo. Since the buyback started yesterday (March 16) and runs for a calendar year, “this makes the programme more symbolic,” said Ritter. “Investors don’t know the price or when purchased stocks are being retired.”
The Buyback Overlaps FEFTA
The buyback programme overlaps the commencement period when Japan’s government implements the Foreign Exchange and Foreign Trade Act (FEFTA) in May 2020, requiring foreign investors to notify the government when they acquire more than a one percent position in a Japanese company from the previous ten percent level.
To outside investors, FEFTA is branded as a muzzle against shareholder activists seeking leadership changes to better unlock value. With half of 3,700 listed companies in Tokyo trading below book value, shareholder activism has risen sharply against companies seen as complacent.
For Softbank, repurchasing shares over this period should help assuage shareholders calling for not only better transparency but also increasing independent board director oversight, and to divest its investments in Alibaba and pullback additional capital for its second Vision Fund.
A Goodwill Compromise
To Softbank’s credit, the company has shown compromise. In addition to the share buybacks last year, Softbank increased its dividend payout and boosted stock liquidity.
During the third quarter results (quarter ended December 2020), Softbank chief executive officer Masayoshi Son underlined his commitments to the dividend and stock repurchase programmes, as well as taking a more consolidatory tone for possible divestments in Alibaba.
Beside corporate actions, Softbank executives are addressing their investments in non-profitable startups to help generate shareholder value.
In 2019, food delivery Door Dash and Uber Eats met at Softbank’s behest to reach an amicable market truce, while reports have surfaced that Southeast Asia ride-sharing companies Grab and Gojek are working to reduce subsidies intended to expand market share. Softbank is also planning to cut staff at WeWork.
But despite the tone change, plans to divest from Alibaba or calls for greater transparency into its Vision Fund, the crux of activist demands, will remain unmet in the immediate future. Alibaba is the single largest asset on Softbank’s balance sheet.
Back in 2019, the Softbank had floated the idea to list Vision Fund. However, write-offs at WeWork and continued loses at Uber, coupled with bearish markets, it is unlikely to do so in a hurry.
The share buybacks should be viewed as an act of goodwill rather than an inflection point for Softbank, more a face-saving gesture to Elliott Management, who had also convinced Twitter into a $2 billion buyback a week before Softbank’s announcement.
The real test comes in May, when Japan Inc. can utilise FEFTA. Its exposure to Japanese telecommunication assets at the group level and the country’s largest pension fund, GPIF, as a shareholder, raises many questions about how Japan’s top brass will apply the new law to Softbank.
“How is the government going to categorise which listed companies fall into the core restricted industry” asked Hiroki Sugita, a partner at Orrick's Tokyo office, speaking to FinanceAsia. It would be difficult to argue that there are no national interests in Softbank.