Did Anyone Know Elliott Management Was Second Largest Shareholder of Softbank?

Matty-Sways

Japanese billionaire Masayoshi Son, founder and chief executive of SoftBank Group,has teamed up with the Singer family.

A few months ago Masayoshi Son said he had “peered over the cliff edge” of financial ruin. However his fortunes have changed and he now has one of the biggest cash stockpiles in the investing world.

Mr. Son owes the turnaround to a strategy shift not associated with his big bet style. Softbank Group has been selling assets and buying back shares.

In a written statement, SoftBank said that while its “vision hasn’t changed, our business model is always evolving,” adding that it is focused on pursuing an artificial-intelligence revolution and “creating value for shareholders—and no one is more determined to deliver than Mr. Son.” He has said he invests with the aim to make SoftBank last 300 years.

Over the nearly 40 years since founding SoftBank, Mr. Son has steered it through a bewildering number of businesses, he once made one of the world’s great venture-capital bets, a $100 million Alibaba investment that is still valued at more than $170 billion even after selling portions of it.

SoftBank said its “culture is one where importance is placed on maintaining momentum to always stay ahead of the times. It is not ‘chaotic.’ ”

However when SoftBank’s shares lost almost $50 billion in value within two weeks Mr. Son and his senior team turned to the folks at hedge-fund Elliott Management Corp. (specifically Gordon Singer, the founder’s 46-year-old son and head of Elliott’s London office). The reason for the close communication (reports say daily calls) was E__lliott has built a SoftBank stake__ that likely makes it the company’s No. 2 shareholder after Mr. Son (with at least $5 billion in SoftBank it could be Elliott’s largest-ever bet on a single stock).

Usually Elliot acquires shares in a given value stock and launches a public campaign with its demands. However with Mr. Son they went with a softer approach. They decided to make an appeal based on logic and the math behind the Softbank's poor performance. When Mr. Singer and his team met Mr. Son in January in Tokyo he was receptive. He agreed SoftBank’s stock was undervalued and openly wondered why he wasn’t as revered as legendary value investor Warren Buffett.

Some suggestions that Elliott executives made to the Japanese firm were to improve corporate governance, including adding women to its all-male board and implementing more checks and balances for Mr. Son, and commit to buying back $10 billion to $20 billion of stock (up to 25% of outstanding shares). Mr. Son didn’t commit to Elliott’s suggestions, appearing to signal he favored a more gradualist approach, including buying back less stock. Elliott decided to take a wait-and-see approach.

On March 13 Softbank committed to buy back roughly $4.8 billion (similar to their previous buybacks). Then on Monday, March 23, SoftBank announced a plan to sell $41 billion in assets and use the money to buy back an additional $18 billion in shares. The move surprised even the biggest supporters of the SoftBank within Elliott.

In the end, SoftBank bought back about $23 Billion in stock and sold enough assets to leave the company as much as $60 billion in available cash, said a person with knowledge of SoftBank’s finances.

Everything isn't roses though as a recent surprise by Mr. Son to become essentially a day-trader has scared Elliot. He now personally directs a team of traders using $20 billion of the cash pile to bet on daily moves in tech names including Alphabet Inc., Amazon. com Inc. and Netflix Inc.

Elliott executives are concerned enough about Mr. Son’s new activity that they have hedged against some of his trades by buying put options on an index of tech stocks.

On an investor call, Mr. Son explained he was putting his own money in the new venture because he wasn’t a “bonus and salary guy” and felt the need to take risk and make money if his bets worked out.

Mr. Son’s traders bought options that at one point were tied to around $50 billion of individual tech stocks, a massive bet on Silicon Valley that caused SoftBank’s stock price to drop 7% after the trade became public in early September. SoftBank lost nearly $3 billion on some of those options trades as well as other derivatives transactions.

Elliott bought offsetting options to hedge against SoftBank’s options trade when it found out about them, protecting them from the trade’s fallout.

Some within Elliott worry Mr. Son might make a surprise, large investment. Recent calls between the companies, a person familiar with the calls said, have included Elliott’s stressing the need for SoftBank to employ discipline.

SoftBank shares were at $63.96 or 6,724 yen at time of publication.

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