Jefferies Group Analyst Says SoftBank May Sell Its Alibaba Shares To Fund Buyback

The decline in the shares of SoftBank Group Corp. could prompt Masayoshi Son to play an ace card of cashing in part of his stake in the Alibaba Group Holding Ltd.

According to Jefferies Group analyst, Atul Goyal, "Son is likely to sell Alibaba stock to help pay for another buyback in an attempt to bolster SoftBank shares." It is quite surprising that the Japanese technology giant’s shares are losing strength despite its large stake in Alibaba, Goyal wrote in a note. The shares have become “decoupled,” and SoftBank is seeing a little upside from its holding, he said. SoftBank’s stock is up by 16% this year, while that of Alibaba has surged 45%. SoftBank’s market cap is about $82 billion, though its Alibaba shares alone are worth about $128 billion.

SoftBank Group Corp. is a Japanese multinational conglomerate holding company that is headquartered in Tokyo. The company owns stakes in Softbank Corp. (ja), Softbank Vision Fund (ja), Arm Holdings, Fortress Investment Group, Boston Dynamics, Sprint (85%), Alibaba (29.5%), Yahoo Japan (48.17%), Brightstar (87.1%), Uber (15%), Didi Chuxing (ca.20%), Ola (ca.30%), Renren (42.9%), among others.  It also runs Vision Fund, the world's largest technology-focused venture capital fund, with over $100 billion in capital.

The company is headed by founder, Masayoshi Son. It now owns operations in broadband; fixed-line telecommunications; e-commerce; internet; technology services; finance; media and marketing; semiconductor design; and other businesses. SoftBank was ranked in the Forbes Global 2000 list as the 36th largest public company in the world, and the 2nd largest publicly traded company in Japan after Toyota

In February, SoftBank made an announcement that a record of 600 billion yen ( that is $5.5 billion) buyback sent its shares to a peak in April, but the stock has since lost most of the gains gotten. Investors have been spooked by the one-two punch of Uber Technologies Inc.’s plunge following an initial public offering in June and WeWork’s meltdown that forced a bailout by SoftBank. The poor performance of Son’s two marquee investments called into question the billionaire founder’s deal-making approach just as he is trying to raise a successor to his $100 billion Vision Fund.

As the current stock price is below the average price paid in the repurchase of stock earlier this year. Goyal further said “we will not be surprised if SoftBank Group funds yet another buyback, perhaps in February 2020, by selling some more stake in Alibaba,”.

SoftBank’s sale of part of its stake in the Chinese e-commerce giant earlier this year and using Alibaba shares as collateral for a loan indicates that Son may be willing to take such a move. In addition to buybacks, proceeds could be used for investment in the second Vision Fund, the analyst said.

Responding to criticism about his reluctance to exit successful investments, Son  unveiled a plan in June 2016 to sell 73 million American Depositary Shares in the online mall operator. The complex transaction was structured so that he could retain some upside if the stock rose and it took three years to complete. SoftBank booked 1.2 trillion yen in pre-tax profit from the deal and still holds about 26% of Alibaba.