SoftBank Group Corp is prepared to spend a record ¥500bn ($4.4bn) buying back stock after the Japanese wireless carrier saw its shares drop to their lowest since buying Sprint Corp in 2013.
SoftBank will purchase as many as 167mn shares, or 14.2% of its stock, using cash holdings and the proceeds of asset sales, the Tokyo-based company said in a statement Monday. The company, saddled with about $100bn of total debt, said it won’t resort to more loans to fund the programme.
Chairman Masayoshi Son has been dogged by doubts about his ability to turn around Sprint as investor concerns drove a 28% plunge in SoftBank stock so far this year. That steep decline has pushed the Japanese company’s market value below that of its own investments in companies including Alibaba Group Holding. “This is a good buyback, considering how low their valuation has fallen,” said Atul Goyal, an analyst at Jefferies Group. “Nothing so bad happened with Sprint and Alibaba to justify the drop in SoftBank shares.” SoftBank shares rose about 9% in European trading after announcing the programme. Before the announcement, the stock climbed 5.7% in Tokyo, lagging the benchmark Topix index’s 8% gain.
The massive buyback programme, which will take place over the next 12 months, won’t significantly affect SoftBank’s debt position or ratings, Japan Credit Rating Agency said in a statement on Monday.
SoftBank had about ¥2.8tn of cash and equivalents as of December 31 although its total debt amounted to ¥12.3tn, according to data compiled by Bloomberg. The group has received about ¥300bn from dividends and the sale of investment securities in the past year, it added. The company is now considering further asset sales to help pay for the buyback, said Hiroe Kotera, a spokeswoman for SoftBank.
“Considering the current share price level, we deemed this a good timing to pay back shareholders,” Kotera said. She didn’t specify what assets SoftBank may sell.
Central to the stock’s under-performance has been Sprint, SoftBank’s biggest overseas investment after its stake in China’s Alibaba. Sprint’s shares have fallen 27% this year, while those of Alibaba have fallen 25%.
Sprint, which had been hemorrhaging cash over the past year, increased its cash and equivalents by almost 12% to $2.2bn in the December quarter. The US company also increased its profit forecast, calling for earnings before interest, tax, depreciation and amortisation of as much as $8bn in fiscal 2016.
“This is a big surprise for the market,” said Satoru Kikuchi, an analyst at SMBC Nikko Securities Inc in Tokyo. “It will take about a year for the markets to believe in Sprint’s turnaround scenario.” SoftBank’s buyback can be compared with the buyback strategy of Berkshire Hathaway, said Jefferies’ Goyal. The company headed by Warren Buffett, for whom Son has publicly expressed admiration, has said intrinsic value, a metric that accounts for the amount of cash that can be taken out of a business in its lifetime, is the best tool for evaluating the company.
“They don’t need shares to acquire companies, but the sum of parts is much greater than the current price, which is absurd,” Goyal said.