SoftBank to prioritise AI deals over share buybacks despite pressure from Elliott

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SoftBank is determined to prioritise investments in artificial intelligence and has no plans for an immediate share buyback, despite pressure for a $15bn capital return programme from activist investor Elliott.

In an interview with the Financial Times, SoftBank’s chief financial officer Yoshimitsu Goto said that the best use of the company’s strengthened balance sheet was in the hunt for AI deals.

“We believe this is a time when new investment activity should be taking place that will be the basis for the future growth of SoftBank Group,” he said, while declining to comment on any specific exchanges the company had with Elliott. 

Elliott, which declined to comment, recently rebuilt a roughly $2bn stake and has been pushing SoftBank to announce a buyback as soon as its first-quarter results are released in August, according to people familiar with the matter. 

However, founder Masayoshi Son said at SoftBank’s annual general meeting last month that the group’s investments in the past — which included some disastrously large bets by its Vision Funds on start-ups such as WeWork — were just a “warm up” for its next stage in AI and described share buybacks as “small stuff”. 

Elliott has argued that buybacks would boost return on equity and narrow the substantial discount between the value of SoftBank’s asset portfolio and its market capitalisation, according to those familiar with its stance. Elliott also believes that the group has the balance sheet strength to return capital to investors and pursue AI deals at the same time.

SoftBank’s current loan-to-value ratio, which gives a sense of how much risk the group is carrying and is a key measure for Son, is at close to 8.5 per cent, a level Goto said was perhaps “too safe”. 

Goto did not rule out buybacks in the medium term — since shareholder returns remain an important part of his considerations and markets could change in the coming months — but said the short-term direction of SoftBank’s capital spending was set.

“We don’t need to be this safe and we need to take on more challenges,” said Goto. “This is why Masa is saying that now is the time to invest.” 

Elliott’s buyback push echoes its approach in early 2020 when it built up a stake of about $2.5bn in SoftBank.

SoftBank did eventually launch a buyback programme in the same year that it turned “defensive” and sold assets to reassure shareholders in the face of the Covid-19 pandemic. 

This time around, SoftBank is back on the offensive looking for AI deals that would support the company’s crown jewel, UK-based chip designer Arm — a plan that Goto said many investors he had spoken to accepted. 

The group’s share price is also up more than 75 per cent this year to record highs. 

However, support for both Son and Goto fell at the recent AGM.

Son, who owns 30 per cent of SoftBank shares, received 79 per cent of the vote, compared with 96 per cent the year before, after proxy adviser ISS recommended a vote against the billionaire because of “unfavourable return on equity performance”. Goto received 89 per cent, down from 98 per cent.

Son’s shareholding and its outsized reliance on large numbers of retail bond holders also afforded SoftBank protection from the demands of activists, said Goto.

“So while other companies may have a strong reaction to the word activist, we may not be the same as them.”

Goto separately underlined that SoftBank was ready to do “large-sized deals” and suggested power generation and data centres as two areas ripe for investment. However, the CFO repeated that he would protect his balance sheet by using project financing or non-recourse loans.

“Because Masa is thinking about such big pictures and the big solution, his movement may be slower than before,” cautioned Goto.

Deal making is starting to pick up. In May SoftBank led an investment of more than $1bn in UK self-driving car start-up Wayve, marking Europe’s largest AI deal to date. It is also in talks to buy UK chip designer Graphcore, according to people familiar with the matter.