October 12, 2012 11:46 am

SoftBank – big bold bets

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Japanese telecoms company is looking for a deal one way or another

Masayoshi Son has always bet big, and bold. So what is it about a possible investment in Sprint that spurred investors to immediately wipe a sixth off SoftBank’s market capitalisation? That is one way of making sure that any deal will not use SoftBank shares as currency.

Back in April the swashbuckling Mr Son announced a new strategy for SoftBank, adding improving shareholder returns to a post-Lehman focus on reducing debt and a perennial interest in strategic growth. He was confident the company could balance the three. Friday’s share slide suggests that shareholders think otherwise. Granted, the size of the deal will have been a surprise. At about Y1.5tn, it would be SoftBank’s biggest deal in years and of an entirely different magnitude to the company’s recent “strategic growth” efforts such as its Y180bn ($2.3bn) all-paper offer for eAccess. There could be some synergies if the cross-border entity can negotiate cheaper equipment deals – both SoftBank and Sprint have big spending programmes under way. Perhaps the two could even offer customers a cross-border roaming deal that did not feel like highway robbery. But that is just dreaming, surely.

Mr Son has success in producing the goods from lagging, leveraged mobile carriers – it is what he has done with Vodafone Japan, the core of SoftBank’s mobile offering. Cash from operations has risen two-thirds in three years and free cash flow should stay positive for the next two even after a near doubling of capital spending. Presumably SoftBank’s shareholders were hoping to enjoy the fruits of their freshly deleveraged cash-rich business before embarking on new adventures. But anyone who thought Mr Son would not be itching to put a strong balance sheet to work missed their man. Even if a Sprint deal does not materialise, another one surely will.

Email the Lex team in confidence at lex@ft.com

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