The Economist - USA (2020-10-17)

54 Business The EconomistOctober 17th 2020

2

1

dollars’ worth of options in publicly listed

stocks such as Amazon, Microsoft and oth-

er technology stars. A new asset-manage-

ment arm had already bought nearly $4bn

of shares in various tech giants. Third, he

could double down on the Vision Fund

model by putting more cash into the sec-

ond vehicle and subsequent funds.

The rationale for a management buy-

out, which would be one of the largest in

history, is the steep discount between Soft-

Bank’s market value and the value of its un-

derlying listed assets (see chart 1). That has

narrowed thanks to a big run-up in Soft-

Bank’s share price this year (owing in part

to a large share buyback).

A buy-out would be feasible, says a big

SoftBank investor, if it were structured as a

bridge loan financed by selling more of the

firm’s stake in Alibaba and other assets. But

it would shrink SoftBank, enriching its bil-

lionaire boss but reducing his ability to in-

vest in new growth areas, notes Oliver Mat-

thew of clsa, a broker. As such, says Mr

Matthew, it looks fairly unlikely.

Investing in publicly listed tech giants

could be more attractive. These firms are

raking in big profits from the digital surge.

Unlisted tech darlings, by contrast, are of-

ten still honing their business models or

fighting for market share. Mr Son’s view,

according to a person close to him, is that

“size begets size, and the big companies are

the ones to succeed in this environment”.

New opportunities in private markets are

less plentiful—partly because the Vision

Fund has already bankrolled most of them.

The third way is less crazy than the first

fund’s blow-ups suggest. Its results are

looking better than a few months ago. So

far it has deployed $82.6bn of capital in 92

firms. By the end of June it had risen in val-

ue by $3.5bn. By the end of September, say

people close to it, it had gained another

$4.5bn. This adds up to a 10% return, hardly

stratospheric: the nasdaq tech index has

returned ten times as much in the past

three years. But it continues a turnaround

from early 2020, when the fund pulled its

parent into a record $8.8bn annual loss.

The fund has nine more years to run. In the

spring it slashed valuations to conservative

levels and now expects markups.

A hot market for technology initial pub-

lic offerings (ipos) will help. Since the

fund’s inception nine of its firms have gone

public. Prominent bets like Uber have dis-

appointed. But all told, returns from the

listings have been decent (see chart 2). And

more ipos are in the offing. DoorDash, a

food-delivery firm, expects to list in No-

vember at a valuation of around $25bn.

That would quintuple the value of Vision

Fund’s $600m investment.

Its 37% stake in Coupang, South Korea’s

Amazon, could prove similarly juicy if it

went public at the level at which some have

been trying to invest. According to inves-

tors in Asia, Coupang has received offers at

a valuation as high as $30bn. And Soft-

Bank’s portfolio contains holdings in some

of China’s choicest private tech stars, in-

cluding ByteDance, the biggest (which

owns TikTok, a short-video app beloved of

teenagers the world over), and Beike, a resi-

dential-property platform which has re-

cently quadrupled in value.

Another reason for optimism is that the

lessons from the Vision Fund’s error-filled

first three years appear to have sunk in. The

second fund is not trying to stuff too much

money into young companies. Whereas Mr

Son’s monster first fund refused to get out

of bed for any investing opportunity under

$100m, eight of its successor’s 13 invest-

ments are less than that. One is a piddling

$20m. It looks far less risky.

What has not changed is Mr Son’s clout

and unpredictability. Under pressure from

Elliott, an activist hedge fund, he has made

governance tweaks, adding a woman to the

board. But Glass Lewis, a proxy firm, op-

posed another appointment. Allies with

the stature to challenge him, such as Jack

Ma, Alibaba’s co-founder, have stepped

down. Whatever Mr Son’s next act, he will

serve chiefly his own impulses. 7

Navigating by the Son

SoftBank Group valuations, ¥trn

Source:NewStreetResearch

1

30

25

20

15

10

5

0

2018161412102008

Estimated net asset value

Market capitalisation

Healthyreturns

Vision Fundpubliclistings,sharepricesinceIPO

% change, atOct13th 2020

Sources:Datastreamfrom

Refinitiv;companyreports

*Grossmultipleofinvestedcapital,

atSeptember21st 2020

2

3002001000-100

MOIC*, increase

since inception 0.8

3.0

1.1

4.2

2.1

0.9

10.9

3.6

8.5

ZhongAn Insurance

Slack

Uber

Relay Therapeutics

Ping An Healthcare

and Technology

OneConnect

10x Genomics

Vir Biotechnology

Guardant Health

A

16 -year fightat the World Trade Orga-

nisation (wto) between Boeing, an

American planemaker, and Airbus, a Euro-

pean one, over illegal subsidies resembles

a heavyweight boxing bout in which both

sides raise their gloves to claim the round.

And so it was on October 13th, when the

wto ruled that the eucan impose tariffs on

$4bn-worth of American goods annually.

The award is lower than last year’s decision

that America is allowed to slap duties on

$7.5bn in European goods. But it was much

higher than the Americans once braced for.

More important, both aerospace titans

look knocked about.

The counterpunching at the wto began

in 2004. After Airbus first overtook it in air-

craft deliveries, Boeing complained that its

rival was boosted by government support

eventually amounting to $22bn in repay-

able “launch aid”. Airbus soon parried with

its own claim that Boeing had benefited

from $24bn in favourable tax breaks, as

well as research-and-development support

from nasa and the Pentagon.

The wto eventually determined that

both firms had received illegal subsidies.

America used last year’s win to slap tariffs

on everything from French cheese to

Scotch. Airbus now faces levies of 15%. The

euwill be permitted to impose its new du-

ties after October 27th.

The latest ruling will not put paid to the

bickering. Boeing says that the contentious

tax break from Washington state has been

repealed, so the looming eutariffs are un-

A ceaseless subsidies scrap between

Boeing and Airbus ends. Maybe

Aerospace

Not boxing clever

The fight is over. Not the race