SoftBank, the Japanese telecoms group led by the acquisitive Masayoshi Son, holds stakes in at least 1,300 other companies. None of those deals, however, could measure up to a $20m investment Mr Son made in a fledgling ecommerce company in 2000.
That $20m bought SoftBank 36.7 per cent of Alibaba – a stake that could be worth about $44bn when the Chinese company lists later this year in New York in what could well be the world’s biggest initial public offering.
Shares at SoftBank have doubled in price in the past 12 months, giving the company a market capitalisation of $98bn.
The stake in Alibaba is a small part of SoftBank’s earnings, contributing just under 3 per cent of net income in the nine months through December, based on SoftBank’s financial report for the period.
Investors have piled in partly on expectations of a payday in the form of a share buyback or special dividend when Alibaba lists, but Mr Son and SoftBank have been coy about what they might do with their lucrative asset.
Yoshimitsu Goto, SoftBank’s general manager for finance, indicated that the group plans to keep the Alibaba stake in an interview with Bloomberg last November.
“Alibaba is among the most important companies in our group, so our plan is to hold the stake for a long period of time,” Mr Goto said.
Daisaku Masuno, analyst at Nomura, said: “While we think SoftBank could use the planned IPO to slightly lower its shareholdings, it has previously said that it intends to maintain a long-term relationship with Alibaba.”
Should Mr Son decide to sell some of the company’s Alibaba share, he will certainly not lack opportunities to spend.
The most obvious place to invest is in restoring SoftBank’s balance sheet after the multiple deals the company completed over the past year.
By far the biggest of these was its $21.6bn acquisition of Sprint last year, which gave it a toehold in the US telecoms industry. It then added to its growing collection of US businesses by agreeing to pay $1.26bn for a majority stake in Brightstar, a Miami-based distributor of mobile phones, days after SoftBank and its subsidiary GungHo agreed to spend $1.5bn for a 51 per cent stake in Finnish mobile-games maker Supercell.
The cost of doing these deals has pushed the group’s total interest-bearing debt above Y8.8tn, raising its net debt from 0.6 times earnings before interest, tax, depreciation and amortisation before the Sprint deal to 3.3 times ebitda now.
Mr Son could also add further firepower to his US expansion.
US regulators have indicated they would probably oppose a SoftBank-backed bid by Sprint for T-Mobile US because of antitrust concerns, although Mr Son has not yet given up trying to get regulators on side.
During a recent trip to the US he promised to launch a “massive price war” in the US mobile market if regulators allow him to acquire T-Mobile US and merge it with Sprint.
But it is likely that Mr Son, who owns about a fifth of SoftBank and wants to create an internet and mobile “ecosystem” marrying telecoms infrastructure with content, would prefer to establish even closer strategic ties with Alibaba rather than cashing out of his stake.
“Internet companies operating in Asia such as Alibaba should see continued steady growth supported by rapid expansion in internet users,” he said last year when asked about Asian internet companies.
“The SoftBank group is investing in or establishing joint ventures with companies possessing outstanding technologies or business models to form what we refer to as the strategic synergy group.”
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