Monday 6 April 2020 ★ FINANCIAL TIMES 7
C O M PA N I E S & M A R K E T S
KANA INAGAKI AND LEO LEWIS— TOKYO
ARASH MASSOUDI— LONDON
Masayoshi Son broke three years of
social media silence on March 10 to
tweet that he was “worried about the
coronavirus”. The Japanese billionaire
pledged shortly afterwards to buy 1m
masks for frontline doctors.
But he was also urgently confronting a
crisis at his technology conglomerate,
SoftBank. Its shares were falling rapidly
as investors speculated that Mr Son,
who famously lost $70bn in the dotcom
crash, was facing another reckoning.
Less than two weeks after his tweet,
Mr Son would break with his longstand-
ing resistance to selling stakes in Soft-
Bank’s most coveted holdings, unveiling
plans to sell $41bn of assets to fund
the largest share buyback in Japanese
history and pay down its enormous debt
load.
The measures would relieve pressure
from Elliott Management, the activist
hedge fund that has pushed Mr Son to
change his spending habits and to
reform SoftBank’s governance.
Since then, the man who has become
a symbol for bombastic, freewheeling
dealmaking has showed other signs of a
shift, cutting his losses on money-burn-
ing start-ups.
Mr Son’s first shot was fired on the
morning of Friday March 13, when he
announced plans for a $4.6bn (¥500bn)
share repurchase. The buzz was short-
lived. Global markets from Tokyo to
New York were being roiled by the coro-
navirus pandemic and share prices were
in free fall.
SoftBank plunged 32 per cent over the
next five trading days, outpacing the
wider market as investors panicked
over its indebtedness. By the close of
Thursday March 19, it was clear further
action was needed.
The value of SoftBank’s Tokyo-traded
shares had fallen to $51bn, a 70 per cent
discount to its asset value. The group’s
market capitalisation was less than that
of SoftBank Corp, the listed Japanese tel-
ecoms group in which it has a two-thirds
stake.
The plunge ruffled Mr Son, who owns
25 per cent of SoftBank. He believed his
company was in a more liquid position
than during the dotcom crash and the
2008 global financial crisis, one person
close to him said. Its two top listed hold-
ings, the cash-rich domestic telecoms
business and its valuable stake in Chi-
nese ecommerce giant Alibaba, had
weathered the market turmoil.
Mr Son was now in an uncomfortable
position. To plough his own money into
the Vision Fund, he had pledged
roughly 40 per cent of his SoftBank
shares as collateral to borrow from 19
financial groups, including Mizuho,
Credit Suisse, Julius Baer, J Safra Sara-
sin, and Liechtenstein’s LGT Bank.
It was not the only way the deal-
maker’s shares had been leveraged: last
year, Mr Son pledged some of his stake
as collateral to help the founder of
India’s Oyo secure funds to boost his
position in the hotel start-up. The deal
doubled the valuation of lossmaking
Oyo to $10bn from the level the Vision
Fund had invested in it.
If SoftBank’s shares kept falling,
banks would demand Mr Son put up
more collateral. People close to Soft-
Bank insist no margin calls were made
to Mr Son.
That Friday, a public holiday in Japan
and one week after the first buyback
plan, SoftBank executives began hur-
ried conference calls over what to do
next. The team included YoshimitsuGoto, SoftBank’s chief financial officer,
Rajeev Misra, the former Deutsche
Bank trader who oversees the Vision
Fund, and Marcelo Claure, the former
Sprint chief executive now tasked with
turning around WeWork.
“We had to deliver an even stronger
message of our strong balance sheet,”
said one person close to Mr Son. “The
discussions went on endlessly until we
reached the best conclusion.”
One idea the group explored was to
take SoftBank private, something which
Mr Son had toyed with previously. The
discussions came after Elliott’s Gordon
Singer and Nabeel Bhanji expressed an
interest in adding to the hedge fund’s
SoftBank stake.
Mr Son instructed his team to study
such a move by contacting other poten-
tial investors such as Abu Dhabi fund
Mubadala. But the plan was dropped
after “half a day” of discussions after Mr
Goto and other executives impressed
upon Mr Son how difficult and time-
consuming the process would be.
Eventually, Mr Son settled on asset
sales that would fund a further $19bn
buyback. “In a way, that buyback is a
public LBO [leveraged buyout]. It’s just
that changed the source of capital,
which was no longer Masa and his con-
sortium partners,” said one of the peo-
ple involved in the talks. It amounts to
33 per cent of all of SoftBank’s shares
outstanding at current valuations.
Executives pushed Mr Son to go fur-
ther, noting that S&P Global had down-
graded its outlook on SoftBank debt to
negative after the first buyback and tell-
ing him that some of the company’s netdebt of $55bn, part of a wider $180bn of
borrowing, should also be paid down.
Veteran equity and credit analysts in
Tokyo say they now assume that all
three of Japan’s megabanks — MUFG,
Mizuho and SMBC, have reached their
maximum lending limits with SoftBank
after extending tens of billions of dollars
of loans.
“People make the mistake of thinking
that Japanese banks are dumb, and that
they have infinite patience with borrow-
ers,” one analyst said. “[But] if there
were big margin calls [caused by Soft-
Bank’s share price fall] the banks would
not turn a blind eye.”
Mr Son appears to have stopped writ-
ing the outsized cheques that made him
the world’s most aggressive start-up
investor. On that Saturday, SoftBank
withdraw from talks to further
fund OneWeb. It also walked away from
a previously agreed $3bn deal to buy
shares from WeWork investors, includ-
ing its co-founder Adam Neumann and
Benchmark Capital, on which another
$1.1bn SoftBank loan to the company
depended.
“In this kind of environment, we have
halted proactive investment. We also
will not be providing needless support
to our portfolio companies,” a SoftBank
executive said.
On Monday March 23, SoftBank
revealed its $41bn package to a recep-
tive market. Since then, its share price
has recovered 39 per cent and its market
value has climbed to $72bn.
Richard Kaye, a portfolio manager at
Comgest who holds a $40m stake, said:
“We like the message that the companyis simply not going to tolerate a massive
valuation discrepancy any more.”
But not everyone has been convinced.
Ratings group Moody’s issued a two-
notch downgrade of SoftBank’s debt.
SoftBank responded by calling Moody’s
views “biased and mistaken”, demand-
ing the agency withdraw its ratings.
Attention has turned to which assets
SoftBank will sell, with particular focus
on its $130bn stake in Alibaba, the cor-
nerstone of Mr Son’s reputation as an
investor and the security blanket for the
huge loans extended by banks. People
familiar with management discussions
said SoftBank was considering a sale of
Alibaba stock worth as much as $15bn.
Investors who spoke to Mr Goto after
the package was announced said they
believe the asset sale will be a mix of
shares in Alibaba, UK chip designer
Arm, its Japanese mobile unit and US
carrier Sprint, which has merged with
rival T-Mobile.
SoftBank executives, working
remotely and communicating via Blue-
Jeans video conferencing app, are still
debating the exact make-up, which will
depend on market conditions.
Close advisers believe Japan’s most
leveraged businessman has one more
trick up his sleeve to try to restore some
of the swagger that SoftBank has
lost since WeWork’s valuation crashed.
The issue with the current strategy,
according to one adviser, is that “it is not
a strategic move forward. It’s too defen-
sive for Son. I would not be surprised if
we see him announcing some acquisi-
tions — probably in the 5G and telecoms
space, and potentially big.”Son’s two weeks of turmoil at SoftBank
How the Japanese billionaire was forced to take drastic action to shore up confidence in his tech empire
SoftBank’s share price plunge
Source: Refinitiv Mar AprFrom left to
right, executives
Marcelo Claure,
Rajeev Misra,
Yoshimitsu Goto
and founder
Masayoshi Son
met virtually to
discuss
SoftBank’s
falling share
price— FT montageHANNAH MURPHY— SAN FRANCISCO
Zoom, the videoconferencing app that
has become wildly popular during the
coronavirus crisis, admitted it had
“mistakenly” routed some user data
through China, marking the latest in a
string of mis-steps to cast doubt on the
security of the platform.
The Silicon Valley company — which
has been used by the British govern-
ment, among others, to host meetings
during the pandemic — said on Friday
certain meetings held by its non-Chi-
nese users may have been “allowed to
connect to systems in China, where they
should not have been able to connect”.
The company said it had “mistak-
enly” allowed the calls to flow through
its two Chinese data centres since Feb-
ruary as part of its efforts to cope with
increased traffic, as millions of people
used its technology to host meetings and
social catch-ups during lockdown.
The company said it had since fixed
the flaw, adding the error occurred only
“under extremely limited circum-
stances” and government customers
were not affected.
Zoom has significant operations in
China, including a research and devel-
opment department with more than
700 staff, which it has cast as a bid to
keep personnel costs low. Until now, it
has sought to reassure western critics
who have privacy concerns — including
that meetings may be vulnerable to spy-
ing from Beijing — that their data was
not routed through Chinese servers.
On Thursday the company had told
the Financial Times “data originating in
the US stays in the US, and cross-border
meeting data goes to wherever the host’s
enterprise account is headquartered”. It
also said at the time it only had one data
centre in China, not two.
Zoom floated in April last year and
now has 200m daily active users, up
from 10m at the end of year. Its shares
have nearly doubled in 2020, although
they are trading down 20 per cent from
highs last week of $128.20.
The China revelations are the latest
concerns about the data security prac-
tices of the company, which on Thurs-
day committed to shifting all its engi-
neering resources to tackling privacy
issues. Mis-steps include undisclosed
data sharing, features that allowed
users to harass other users, and mis-
leading statements about its encryption
capabilities — all of which it has sought
to address with technology or policy
updates. It also announced plans to pre-
pare a transparency report about any
data requests it has received from gov-
ernments, following pressure from pri-
vacy advocacy groups.
Friday’s statement was prompted by
research from Citizen Lab, which found
in some cases Zoom’s encryption keys —
the code used to unscramble meetings
data — appeared to be sent to servers in
Beijing.Technology
Zoom admits user data routed
‘mistakenly’ through China
GEORGE HAMMOND— LONDONA shopping centre owner in the
small Dutch city of Dordrecht is threat-
ening to bankrupt AS Watson, the
biggest health and beauty products
retailer in the world, over an unpaid
€9,000 rent bill.Pieter van Loon, who owns about 30
shops, has launched a case against the
European arm of AS Watson, which also
owns Superdrug and posted revenues of
more than €10bn in 2019. The company
is a key asset in Hong Kong tycoon Li
Ka-shing’s global business empire.
Mr van Loon has launched court pro-
ceedings to have the company declared
bankrupt on the basis that its subsidi-
ary, perfume shop ICI Paris XL, has
withheld rent payments for April from
155 Dutch landlords. The total withheld
from Mr van Loon is €9,474.72.
“I received a letter pronouncing they
wouldn’t pay the rent any more. That
was it,” said Mr van Loon, whose com-
pany Tres Invest collected 67 per cent of
the total rent it was due for April.
The episode is one of many battles
playing out between commercial ten-
ants and their landlords from Sydney to
San Francisco, as the former withhold
payments while their shops are forced
to close because of coronavirus.
While other companies, including
Dutch lingerie company Hunkemöller
and a number of smaller retailers either
paid in full or sought to negotiate withMr van Loon, ICI Paris had not yet
offered a compromise, he said. Court
proceedings are unlikely to result in
bankruptcy for AS Watson, but Mr van
Loon claims to be acting out of principle.
“I said, ‘if you treat me like this, you’ll
get the same reaction from me.’ That’s
the reason I’m going to court.”
Lina Alblas-van den Burg, managing
director of ICI Paris, confirmed receipt
of a bankruptcy notice from one of the
company’s landlords, but said there
was “no chance that he will be success-ful under Dutch law”. She added: “At the
same time, we do understand his senti-
ment. We will meet him early next week
in order to find a common agreement.”
UK landlords received just a third of
the rent due to them on the quarter’s
payment date in late March.
Across Europe, AS Watson has 8,
stores. Mr van Loon’s tenant, ICI Paris, is
a sub-brand with almost 300 stores.
“I don’t want to play with a big Asian
giant, but I have to make my statement:
this is not how it works in Holland,” said
Mr van Loon.
Additional reporting by Primrose Riordan
in Hong KongRetail & consumer
Dutch shopping centre owner
takes on Li chain over rent bill
ANNA NICOLAOU— NEW YORKA small online bookseller launched in
January has found unexpected success
in recent weeks as the coronavirus
pandemic turns the business world
upside down.Bookshop.org, an ecommerce site that
lets people buy print books directly
from independent shops, started two
months ago with little fanfare and ini-
tially sold about $4,000 worth of books
a day.
But as physical bookstores have shut
and Amazon, which has taken a large
slice of book sales, has slowed ship-
ments of non-essential goods, Bookshop
is now making in excess of $140,000 in
sales a day.
Due to bizarre timing and circum-
stances, this start-up has turned into a
rare Covid-19 success. “If we had
launched even two months later, this
wouldn’t have happened,” said founder
Andy Hunter, who believes annual sales
could reach $60m if the virus kept soci-
ety in lockdown. “We’re just trying to
keep up with it. I thought this was
urgent because Amazon was growing so
fast. But I didn't realise, of course, that
this [pandemic] was coming.”
Mr Hunter created Bookshop with the
ambition of taking on Amazon’s domi-
nance of the book market. “This is about
preserving an industry,” he says. “We’re
using Silicon Valley tactics to try to keep
things the way they were.”Amazon’s influence in the sector has
ballooned in recent years. The group
was responsible for 52 per cent of all US
book sales as of October, according to
Codex, a research company.
Mr Hunter, a publishing veteran who
previously founded sites including Lit-
erary Hub, raised less than $1m for
Bookshop from investors including the
American Booksellers Association and
billionaire Will Hearst.
The premise of Bookshop is simple: a
sleek website where independent book-
shops can come to sell their inventory to
customers online. The site works with
the distributor Ingram, which handles
shipping, and splits its revenue between
the booksellers, Ingram and the pub-
lisher. Altogether it loses about 75 per
cent of its revenues to these payouts and
fees, Mr Hunter said.
About 420 independent bookshops
use the platform as their doors have
shut. Meanwhile, Amazon’s shipments
of books have slowed, according to sev-
eral publishers. The ecommerce group
said it “continue[s] to focus on receiving
and shipping high priority products that
customers need at this time”.
While no sector will be immune to a
recession, books are proving more resil-
ient than businesses such as cinemas as
people quarantined at home seek new
material. Readers in the US bought
32.4m print books between March 8 and
28, down just 1 per cent from a year ago,
according to NPD BookScan.Media
Independent rival to Amazon
proves turn-up for the books
Friday March 13
SoftBank announces $4.6bn (¥500bn)
share buyback planWednesday March 18
SoftBank warns it may walk away from
WeWork dealThursday March 19
Shares touch a near four-year low
of ¥2,687, down nearly 30 per cent
from previous FridayFriday March 20
SoftBank executives begin long
weekend of talks, including over
whether to take the group privateSaturday March 21
SoftBank executives terminate talks
with OneWeb over further fundingMonday March 23
SoftBank announces $41bn share
buyback and debt reduction plan,
funded by an asset saleKey dates in company’s
bid to win back investorsTimeline‘We had to deliver an even
stronger message of our
strong balance sheet. The
talks went on endlessly.. .’
‘I don’t want to play with
a big Asian giant, but
... this is not how it
works in Holland’
APRIL 6 2020 Section:Companies Time: 5/4/2020 - 17: 34 User: andrea.crisp Page Name: CONEWS2, Part,Page,Edition: USA, 7, 1