Stock buybacks and cutting losses: SoftBank, the Japanese investment giant behind WeWork, is under immense pressure to shield itself from an upcoming downturn

FILE PHOTO: Japan's SoftBank Group Corp Chief Executive Masayoshi Son attends a news conference in Tokyo, Japan, November 5, 2018.  REUTERS/Kim Kyung-Hoon/File Photo

Reuters

SoftBank Group Corp Chief Executive Masayoshi Son.

  • SoftBank is selling key assets to buy back stock in an effort to cushion its stock, which has plummeted over 50% since mid-February because of fears over the coronavirus outbreak, the company announced Monday.
  • The company has come under pressure from investors to buy back shares and reassure the public market while its stock and market capitalization continues to slide.
  • The company is also reconsidering its stake in value-destroying portfolio companies, like its notice to WeWork investors warning them that it could back out of its bailout of the embattled company.
  • Visit Business Insider's homepage for more stories.

Japanese technology conglomerate SoftBank is under immense pressure to not repeat history from the dot-com era and go bust.

The company behind the $100 billion Vision Fund announced Monday that it would sell $41 billion of its assets to cut debt and buy back its shares. Coupled with the buybacks it announced two weeks ago, the sale of its assets would allow SoftBank to retire as much as 45% of its stock.

It's a necessary move for the investment giant, whose stock ticked up 19% after the announcement - but failed to significantly boost shares back to its former levels.

As the coronavirus outbreak has roiled public markets over the past month, SoftBank has been hit especially hard. Its stock price has plummeted since mid-February, and SoftBank's stock took a 17% dive on Thursday - marking its biggest one-day fall ever, even surpassing the company's stock drop during the dot-com bust, which had briefly wiped away SoftBank CEO's Masayoshi Son's wealth.

After Monday's rally, SoftBank shares are still down more than 40% from their peak in February.

The gap between the total value of SoftBank's investment holdings and its market capitalization also hit a record 73% last week, according to SoftBank's statement Monday, a worrying sign for investors and analysts alike.

On top of everything, SoftBank is facing both internal and external pressure from different investors.

Activist hedge fund manager Elliot Management recently built up a $2.5 billion stake in the company, and has been using it to push for its own changes. Pressure from Elliot was reportedly the impetus for SoftBank's original plan to buy back 7% of its shares, the Wall Street Journal reported earlier this month.

And the hedge fund Apollo Global Management reportedly placed a substantial short bet against SoftBank bonds back in December, the Financial Times reported Sunday. The hedge fund listed concerns about the company's sizable debt load and exposure to value-destroying startups like WeWork as reasons to be skeptical of the investment giant's future.

Turmoil at Vision Fund

SoftBank's tech investment arm is also in for a tough spell as the coronavirus outbreak has forced much of the world to retreat into quarantine and consequently devastated large sectors of the global economy.

SoftBank still has a 16% stake in Uber, whose stock is still down about 45% because of the coronavirus outbreak. Several of Vision Fund's portfolio companies - like Didi, Grab and Ola - are still private and have no exit strategies. And even DoorDash, which filed for an IPO earlier this year, is expected to face a poor reception on Wall Street because of its money-losing business model.

Last week, Bloomberg reported that the company sought to raise an additional $10 billion to support its portfolio companies, which were getting slammed as the coronavirus pandemic spread across the US. It's a move unlikely to help SoftBank raise money for its second Vision Fund, which has so far raised a fraction of SoftBank's original estimate.

But SoftBank is reportedly seeking to shield itself from its portfolio companies' worst losses.

Last week, the Wall Street Journal reported that SoftBank could back away from part of its bailout of the embattled company WeWork, a move that prompted WeWork directors to begin gearing up for an internal battle.

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