If there is a trait that encapsulates the corporate culture of SoftBank and the mindset of its founder, Masayoshi Son, it is a penchant for transformative deals.
Son, SoftBank’s irrepressible chief executive, demonstrated his appetite for just such a daring move in 2012 when he announced the Japanese telecoms group would spend $20bn to acquire 70 per cent of Sprint Nextel, the third-largest mobile phone operator in the US.
SoftBank’s bid for Sprint will create a cross-border mobile phone group with a subscriber base of 96m and revenues of $81bn, making it the third-largest mobile operator in the world in revenue terms.
The deal, which will more than double the company’s current 40.5m subscribers, is not only audacious because of its size. Japan’s biggest cross-border merger to date will also bring SoftBank into direct competition with the two industry heavyweights, AT&T and Verizon, and catapult the Japanese group to centre stage in the lucrative US mobile market.
But Son, who has never been one to shy away from a difficult task, appears to relish what could be a bruising fight against stronger rivals. “The fact that two wealthy operators dominate the market means there is an unprecedented opportunity for a challenger,” Son said in October as he unveiled the Sprint deal. Sprint has 16 per cent of the US market, against AT&T’s 30 per cent and Verizon’s 32 per cent.
It would be a bigger risk, the SoftBank chief reasoned, “not to take up the challenge”.
The comments are typical of the diminutive Son, a Japanese citizen of Korean descent, who has built his business empire against many odds. The key to his success has been a “venture spirit”, says Nobuyuki Idei, former chief executive of Sony who now runs Quantum Leaps, a provider to start-ups of consulting services and investment.
Unlike many in the west, who harbour a desire to retire young and become philanthropists, Son “keeps on dreaming”, says Idei, who has known the SoftBank chief for many years.
What is more, according to Idei, Son has an ability to think big – a trait that is hard to find in Japan, he says. For example, before the Sprint acquisition, Son worked on a large-scale project with China Mobile and Vodafone to promote the development of new telecom technologies, applications and services.
After the meltdown at the Fukushima nuclear power plant in 2011, he put forward plans to set up a company to build mega-solar power plants.
Son’s big thinking extends to the debts he takes on when he buys a business, says Idei.
Unlike most executives, who talk proudly about the size of their company’s revenues, Son likes to boast about his credit rating, says the former Sony chief.
“When I introduced him to the Keidanren [Japanese business federation], he talked about how his credit rating was high enough for him to take on large debts,” Idei recalls. It is as if by taking on large amounts of debt, he pushes himself to work harder, Idei says.
Ever since Son stood on a fruit box more than 30 years ago and declared to his two employees that the company he had started in a run-down office with no business plan would make Y50bn ($536m) in 10 years, Son has thrived by taking big bets.
In the early days of the company that would later become SoftBank, Son invested Y8m of his Y10m in capital to lavishly kit out a booth at a consumer electronics fair in an effort to raise the profile of the start-up distributor of computer software. The strategy worked and the company grew to take a stranglehold on computer software distribution in Japan in the 1980s.
But the ever-restless Son was not content with being a software distributor. He also spent the company’s funds on a curious collection of acquisitions and investments. In an 18-month period from late 1994, SoftBank acquired Ziff Davis, then the leading US publisher of computer magazines, for $2.1bn; Kingston Technology, a maker of semiconductors, for $1.5bn; and Comdex, the exhibitions group, for $800m.
SoftBank also, in 1996, became the largest shareholder in Yahoo, the web search engine, with a 37 per cent stake – a move that established Son’s reputation as a savvy investor in internet start-ups. The company began selling down the stake four years later, and although the exact amount it made from the transactions is difficult to quantify, the sale of a 4 per cent tranche in 2011 brought an extraordinary profit of Y76bn.
By the mid-1990s, although he was still expanding in publishing and exhibitions, Son found new interests. In 1996, with Rupert Murdoch’s News Corporation, SoftBank set up a 50:50 joint venture in satellite broadcasting called JSkyB. But what really shocked Japan’s business community was another Murdoch tie-up: the like-minded entrepreneurs also quietly acquired a 21 per cent stake in TV Asahi, one of Japan’s main broadcasters.
The stake was quickly sold back to the Asahi newspaper after the entire Asahi media group rallied around the panicked broadcaster to fend off the duo. SoftBank also attracted controversy with its investment in Aozora Bank, created from the once-nationalised Nippon Credit Bank. The 2003 sale of the stake to Cerberus, the US private equity firm, made the company a Y50bn profit.
It is no wonder that even as SoftBank raised its profile, many found it difficult to understand what the company really did or the nature of Son’s ultimate goal. Appearing on television in 2000, Son was told by a well-known newscaster that he was gaining a reputation as a “fortune hunter”.
The comment reflected the view of some in the business world that Son used SoftBank to bet on companies, rather than developing businesses themselves. For many years, Softbank, with its constantly changing model, appeared to be a company in search of a business to call its own.
Although Yahoo Japan, a joint venture SoftBank set up with the search engine group, has been hugely successful, it has always been treated as an investment and has never been the core of the company’s operations.
When, in 2004, it acquired Japan Telecom, a fixed-line phone company, it looked like SoftBank might have found its calling. But the company’s adventure in fixed-line telephony was followed in 2006 by a move into mobile via the acquisition of Vodafone’s mobile business in Japan. That deal, which cost SoftBank $15bn, was Japan’s largest leveraged buyout at the time and the debts that the company took on to fund it have only recently been paid off.
Mobile telecoms now comprises the bulk of SoftBank’s revenues and profits, well outpacing fixed-line sales.
SoftBank said it had always “engaged in the information telecommunications business” and hoped to “continue to be a leader in the industry”.
But the company’s ability to move out of businesses swiftly when they lose momentum can also be seen as the key to its success in navigating a rapidly changing business environment.
While the strategy might seem precarious, “like a bicycle that will fall over if you stop pedalling”, as the company’s chief financial officer once worried out loud to his boss, the solution, as Son put it, is to “pedal harder”.
That appears to be what SoftBank is doing with the move for Sprint, which, following its success as the first provider of Apple’s iPhone in Japan, now faces competition from KDDI, Japan’s number-two telecoms group.
This year, Son said the still-booming iPhone business would enable SoftBank to post strong profits in 2013, but looking ahead he emphasised the role Sprint would play in helping the company achieve record profits.
“The more we get to know Sprint, the happier I am and the more confident I am about this deal,” Son said.
A passion for all things Japanese: SoftBank chief rose from humble roots in his adopted homeland
Masayoshi Son’s rise to prominence is testament to the business acumen and steely determination of a man who came from humble origins.
Born into a poor Korean family in Kyushu in western Japan, Son grew up with the Japanese name Masayoshi Yasumoto – a protective measure common among Korean immigrants, who suffered discrimination in their adopted homeland.
Moving to the US to pursue his education, while still a student at the University of California, Berkeley, he developed a prototype translating machine that was later sold to Sharp, the Japanese electronics company.
Although his Korean heritage was a factor in sending him to the US, Son has remained deeply attached to Japan, returning there after he left the US.
In a reflection of his love for all things Japanese, he had a traditional Japanese garden built outside his office in SoftBank’s high-rise Tokyo headquarters, complete with arched bridge, a river and even crickets.
“Son-san told me he built it with his own money, not the company’s,” says Nobuyuki Idei, a friend and former chief executive of Sony.