22 BARRON’S July22,2019
could be one of the best investments
ever made by anyone.
The value of the Alibaba stake
alone exceeds SoftBank’s current
market cap. To be sure, the embed-
ded capital gains—basically the en-
tire value of the holding—imply a
substantial tax liability if the com-
pany were sold. But discount the
stock by 30%—the Japanese capital-
gains tax rate—and the adjusted
value would still be around $80 bil-
lion, about 80% of the current Soft-
Bank market cap.
In another investing coup, Soft-
Bank in 2006 bought Vodafone
Japan, then a struggling mobile
phone carrier, for $15 billion. Just
before that transaction, Masa had
met with Apple (AAPL) CEO Steve
Jobs, who told him about the pend-
ing launch of the iPhone. Masa re-
ceived a commitment from Jobs to
get exclusive rights to offer the first
iPhones in Japan.
Jobs kept his word. Securing
those rights set the stage for the
rapid growth of the Japanese mo-
bile phone company now known as
SoftBank Corp., or SoftBank KK.
In December 2018, SoftBank KK
was spun off in the largest Japanese
IPO ever. SoftBank Group’s 66.5%
stake in SoftBank KK is worth $42
billion.
In 2012, SoftBank bought a ma-
jority position in Sprint for $22 bil-
lion; its 84.4% of the wireless car-
rier is valued at $24 billion at
current prices. Sprint has a pending
merger with T-Mobile US (TMUS)
in a deal that would swap each
Sprint share for a fractional share
of T-Mobile; SoftBank would own
27% of the combined company. Reg-
ulators, however, continue to negoti-
ate with the parties over terms of
the transaction, and completion is
far from assured.
Through SoftBank KK, the com-
pany also owns 48% of Yahoo Japan;
that holding is worth about $10 bil-
lion, but is reflected in the mobile
company’s valuation.
More important to the sum-of-
the-parts calculation is the U.K.-
based chip design house Arm Ltd.,
which SoftBank bought in 2016 for
$32 billion. Masa sees Arm, which
dominates the market for mobile
microprocessor designs, as an im-
portant technology player in AI,
sensors, 5G wireless, and
autonomous vehicles. A quarter of
Arm is held inside the Vision Fund,
the rest is owned directly by Soft-
Bank Group. In calculating the
value of SoftBank’s assets, it seems
reasonable to use the purchase
price—about $24 billion—for the
parent’s 75% stake.
However, that might understate
Arm’s value. Since the deal closed,
the company has been aggressively
investing in its business, hiring
more than 2,000 people and adding
new capabilities in artificial intelli-
gence, the Internet of Things, and
other areas.
In an interview, Arm CEO Simon
Segars says there is no way Arm
could have made those kinds of in-
vestments in the sharp glare of the
public markets. “Masa engages
deeply on long-term strategy—he
wants to make sure conservatism
doesn’t get in the way of ambition,”
he says.
Segars anticipates an IPO for
Arm in 2023, in line with when he
expects some of the company’s new
investments to pay off. He thinks
that will start with the broad rollout
of 5G wireless, which should drive
more handset sales and “radically
simplify” the Internet of Things,
leading to more sources of data and
growing use of AI, including for
autonomous driving.
SoftBank Group’s financial state-
ments list $4.6 billion in other as-
sets, including the robotics company
Boston Dynamics, acquired from
Alphabet (GOOGL) in 2017 for an
undisclosed price; the investment-
management firm Fortress Invest-
ment Group, purchased for $3.3 bil-
lion in 2017, and the Fukuoka
SoftBank Hawks baseball team,
which he bought in 2004. The
Hawks have won the league champi-
onship in four of the past five years.
Before you take out your calcula-
tor, let’s talk about SoftBank’s bal-
ance sheet. The company has just
$40 billion in net debt, even though
its consolidated balance sheet
shows $150 billion in debt, reflecting
the borrowings of both Sprint and
SoftBank KK. SoftBank, however,
has no legal obligation to repay the
obligations of the two telecom units,
should something unpleasant hap-
pen to them.
How the Vision Fund Works
The Vision Fund has an unusual structure with a substantial payoff to SoftBank Group
for strong performance. Here’s how it works.
Overall, the fund has commitments for a combined $103 billion
Vision Fund Investors
The fund has both preferred shares and common shares.
The split is about 40% preferred and 60% common.
Saudi Arabia Public
Investment Fund
$45 billion
Total Vision Fund Commitments
$103 billion
Mubadala
Investment
Company
$15
SoftBank Group
$32.5
Foxconn Technology Group$2 billion
Apple$2
Sharp$1
Other$5.5
*Year ended March 31, 2019; ** 29% return represents a blend of a 45% return on the common shares and
the 7% fixed return on the preferred shares. Source: Company reports