E-Commerce

Masayoshi Son's $58 Billion Payday on Alibaba


Masayoshi Son

Photograph by Tomohiro Ohsumi/Bloomberg

Masayoshi Son

Given the rapid-fire pace at which SoftBank (9984:JP) President Masayoshi Son has funded hundreds of tech startups over the past two decades, his company’s $20 million investment 14 years ago in a tiny Chinese e-commerce operator called Alibaba.com was easy to miss. Son’s dealmaking synapses have been in overdrive since the dawn of the Internet age in the mid-1990s, and he has bet billions on unproven startups in search of tomorrow’s most promising technologies and online business models. “On the Net, everything moves so quickly,” Son said in an interview in 2000. “So you have to do things differently.”

That meant taking a flier on an Internet startup founded by Jack Ma, a former English teacher from the eastern Chinese city of Hangzhou. Thanks to that initial investment and subsequent ones, SoftBank now owns 34 percent of Alibaba, which today is a powerhouse spanning business-to-business Web portals, online retail, shopping search engines, and cloud computing. The Chinese company filed documents on May 6 with the Securities and Exchange Commission to launch an initial public offering, expected later this year in New York, that may exceed the $17.9 billion raised by Visa (V) back in 2008, making the stock debut the biggest ever in the U.S. SoftBank’s holding would be worth $58 billion, based on a consensus of analyst valuations compiled by Bloomberg that peg Alibaba’s market value at about $168 billion, and adds to a portfolio assembled by Son over the past two decades that includes control of Sprint (S), the No. 3 U.S. carrier; Yahoo! Japan (4689:JP); and about 1,300 other businesses.

The Alibaba windfall is a bit of vindication for what Son has called his Netbatsu strategy, a digital age variation on the old Japanese zaibatsu, or industrial conglomerate. That approach cost SoftBank dearly when the dot-com bubble burst in 2000 and his soured investments in Buy.com and Webvan Group hit the Japanese company’s share price and finances hard. Yet Son persevered and continued buying up positions in tech companies. That’s not unlike what Google (GOOG) and Facebook (FB) are now doing by leveraging their cash piles and stock valuations to acquire startups pioneering robotics, artificial intelligence, and virtual-reality devices.

At an earnings briefing on May 7, Son said he has no immediate plans to sell off his dominant stake in Alibaba, where post-IPO SoftBank is expected to remain the Chinese company’s biggest shareholder and be a key partner in Asia. Even so, the windfall will make lining up bank financing far easier, and SoftBank needs more growth to offset Japan’s shrinking population and stagnant economy. SoftBank enjoyed an early advantage as Apple’s (AAPL) exclusive partner to sell the iPhone in Japan, but the other big Japanese operators, NTT Docomo (9437:JP) and KDDI (9433:JP), now sell the iPhone, too. The company’s operating profit forecast for the fiscal year ended in March is 1 trillion yen ($9.8 billion), a 7.8 percent decline from a year earlier.

With Japanese growth prospects uncertain, Son has been looking overseas. Last year he took control of Sprint in a $22 billion acquisition and paid $1.5 billion for Supercell, the game maker from Finland behind Clash of Clans, and $1.3 billion for U.S. mobile phone distributor Brightstar. SoftBank is now preparing a bid for T-Mobile US (TMUS). If Son chooses to, SoftBank’s stake in Alibaba would “be more than enough to finance a purchase of T-Mobile, accelerate Sprint’s 4G deployment, or purchase additional licenses,” says Roger Entner, an analyst with Recon Analytics in Dedham, Mass.

The second-richest man in Japan, behind only Tadashi Yanai of Fast Retailing’s (9983:JP) Uniqlo brand, Son, 56, is worth $15.8 billion. Even so, he’s still in career expansion mode and determined to best not only rivals in Japan such as NTT Docomo but also telecom competitors worldwide. “Son doesn’t want to stop at being the world’s No. 1 mobile carrier,” says Satoru Kikuchi, an analyst with SMBC Nikko Securities in Tokyo. “He aims to become the world’s No. 1 company. To do that, he needs growth from Internet companies, so Alibaba is important for Son.”

The bottom line: SoftBank’s Son parlayed a $20 million investment in Alibaba into an estimated payoff 2,900 times that amount.

With Grace Huang
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Einhorn is Asia regional editor in Bloomberg Businessweek’s Hong Kong bureau. Follow him on Twitter @BruceEinhorn.

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Companies Mentioned

  • 9984:JP
    (SoftBank Corp)
    • $8657.0 JPY
    • 292.00
    • 3.37%
  • V
    (Visa Inc)
    • $217.3 USD
    • 2.66
    • 1.22%
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