Bloomberg News

SoftBank Sees Market Value Drop $24 Billion on U.S. Hurdles (2)

February 04, 2014

SoftBank Corp. Founder Masayoshi Son

The stock slide reflects the sudden challenges for SoftBank Corp. founder Masayoshi Son, one of Japan’s most successful entrepreneurs with a net worth estimated at $15 billion. Photographer: Junko Kimura/Bloomberg

SoftBank Corp. (9984) founder Masayoshi Son’s U.S. ambitions are taking a toll at home.

SoftBank has declined 22 percent this year in Tokyo trading, dragged down by concerns about Sprint Corp. (S:US), the U.S. carrier it bought last July. Undaunted, Son is considering doubling down in the region with a deal for T-Mobile US Inc. (TMUS:US) -- another source of investor anxiety.

The stock slide has lopped almost $24 billion off SoftBank’s market value this year and underscores the challenges facing Son, one of Japan’s most successful entrepreneurs with a net worth calculated at $15.2 billion. SoftBank took on debt as it sought control of Sprint and has yet to show it can repeat the success it’s had in Japan. And while a T-Mobile purchase would let Son unite the third- and fourth-largest U.S. carriers, such a deal would bring regulatory and financial risks.

“Concerns are spreading about the performance of SoftBank and Sprint,” said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo. “Profit won’t rise quickly even if the acquisition succeeds.”

SoftBank rose 2.1 percent to 7,211 yen as of today’s close in Tokyo, snapping a nine-day losing streak, the longest in two years. Its decline this year compares with a 14 percent drop in Japan’s benchmark Nikkei 225 Stock Average. The company almost tripled last year and still trades at close to the same level as in October.

Cool Reception

SoftBank’s decline in 2014 has wiped out $3.8 billion of Son’s personal net worth as of yesterday’s close, according to the Bloomberg Billionaires Index. His fortune increased by $10.1 billion in 2013.

Mitsuhiro Kurano, a spokesman for Tokyo-based SoftBank, declined to comment.

The stock slump comes as Son considers an acquisition of T-Mobile, which is No. 4 in the U.S. market. SoftBank has entered into direct talks with T-Mobile owner Deutsche Telekom AG (DTE) about resolving obstacles to a potential purchase, people familiar with the matter said last month.

In pursuit of that deal, Son is slated to visit Federal Communications Commission Chairman Tom Wheeler, said an official with knowledge of the visit who asked not to be identified because the meeting isn’t public. John Taylor, a Sprint spokesman, declined to comment.

Though the T-Mobile deal would give Son more scale to compete against market leaders Verizon Wireless and AT&T Inc. (T:US), he would have to take on more debt and surmount regulatory obstacles to get the deal done. Sprint executives met last month with antitrust officials at the U.S. Department of Justice about the possible transaction and got a cool reception, a person familiar with the matter said.

Surprise Cost

Sprint, meanwhile, is still trying to execute a turnaround. The carrier has been working to upgrade its network with technology known as long-term evolution, or LTE. The new standard brings higher speeds, letting Sprint catch up -- and possibly surpass -- the abilities of its peers.

While the company has said the capital expenditures will be $8 billion this year and $6 billion next year, the actual figure may be higher if Sprint wants to achieve superiority, according to Craig Moffett, an analyst with MoffettNathanson Research.

Sprint’s use of higher-frequency 2.5-gigahertz airwaves puts it at a disadvantage in urban areas where the signal doesn’t easily pass through walls and windows, Moffett said in a note yesterday. To make the network dense enough to provide indoor coverage, Sprint may have to spend $3.1 billion more than it has forecast, he said.

How Much?

“The promises of a transformational network experience have captivated investors,” Moffett said. “But while investors have priced in Sprint’s transformed capability, they haven’t yet priced in the cost of building it.”

SoftBank’s recent share decline also reflects slower sales growth at Alibaba Group Holding Ltd., China’s largest e-commerce provider, according to Nomura Holdings Inc. SoftBank owned about 37 percent of Alibaba as of July.

Son, who has 2 million followers on Twitter, has said he wants to turn SoftBank into the world’s No. 1 carrier. Acquiring Bellevue, Washington-based T-Mobile would get him closer to that goal.

“With the acquisition of T-Mobile, SoftBank will be the second-largest mobile-phone company in the world,” Tomoaki Kawasaki, an analyst at Iwai Cosmo Holdings Inc. in Tokyo, said last month. “Son can take advantage of it to boost competitiveness.”

Losing Subscribers

For now, Sprint is struggling to cope with its increasingly aggressive rivals. Carriers are offering cheaper plans and buyout offers to customers who switch providers. Sprint, which will report fourth-quarter results on Feb. 11, probably shed subscribers in the period, extending a losing streak, according to Bloomberg Industries analyst John Butler. Verizon, meanwhile, added 3.4 million new subscribers in the past three quarters, while T-Mobile gained more than 2 million.

Sprint, which reduced marketing spending in the third quarter, is focusing on upgrading its network and doesn’t expect a rebound until at least the middle of this year, Butler said.

Sprint closed down its outdated Nextel network on June 30, losing some subscribers in the process. The company reported third-quarter revenue (S:US) of $8.68 billion in October, missing the average of analyst estimates compiled by Bloomberg. The carrier said on Jan. 23 that it would take a charge of about $165 million in the fourth quarter for costs related to job cuts.

Sprint’s Stock

Shares of Overland Park, Kansas-based Sprint have fallen (S:US) 27 percent this year. The stock dropped 5.1 percent to $7.85 at the close yesterday in New York.

A T-Mobile takeover also would place additional strain on SoftBank’s credit rating. Moody’s Investors Service and Standard & Poor’s cut SoftBank to junk in July after the Sprint purchase. The Japanese company took out a 2 trillion-yen ($20 billion) loan to refinance debt from that takeover.

Son has approached banks to discuss about $20 billion in financing for a T-Mobile bid, people familiar with the matter said in December. The plan is to take control of T-Mobile by paying cash for the 67 percent stake owned by Deutsche Telekom, the people said.

Of 19 analysts tracked by Bloomberg, 15 still recommend buying SoftBank shares. Three have hold ratings, and one advises selling. Nomura maintained a buy rating in a Jan. 30 report, saying the recent share-price decline makes SoftBank undervalued. The Japanese company should continue to gain from growth in online advertising and e-commerce in China through its stake in Alibaba, Nomura said.

Son won’t abandon his quest for T-Mobile easily, said Yasuaki Kogure, chief investment officer at Tokyo-based SBI Asset Management Co. SoftBank’s chief will probably propose measures including spinning off business units to gain regulators’ approval, Kogure said.

“Son would consider a variety of ways to get regulators to say yes,” Kogure said. “He won’t give up soon.”

To contact the reporters on this story: Takashi Amano in Tokyo at tamano6@bloomberg.net; Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net


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Companies Mentioned

  • S
    (Sprint Corp)
    • $4.31 USD
    • -0.03
    • -0.58%
  • TMUS
    (T-Mobile US Inc)
    • $26.98 USD
    • -0.05
    • -0.19%
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