HONG KONG (Reuters Breakingviews) - Like a restless gambler outside a casino, SoftBank founder Masayoshi Son simply can’t resist a flutter. A month after disclosing plans for a fund to manage excess corporate cash, the Japanese conglomerate has bought at least $30 billion of exposure to U.S.-listed technology stocks with $4 billion of call options. The investment reveals SoftBank’s true colours.
The use of derivatives did not stop Son from being tagged a “whale”. In investing terms, it means he cannot help but move the market. In wagering parlance, it signals the high stakes involved. The trades in some ways echo the venture capital deals struck by SoftBank’s Vision Fund. Although most were nominally small compared to the fund’s $100 billion firepower, they were big enough to alter fundraising dynamics for startups.
It is unclear if there will be any financial benefits from the trades. A sharp downturn in U.S. tech stocks erased 10% from the Nasdaq Composite Index over two days last week. SoftBank’s own shares tumbled 5% – a loss of more than $7 billion in market value – early on Monday following the weekend reports on SoftBank’s pursuits by the Financial Times and the Wall Street Journal.
Whether the options ultimately wind up profitable is somewhat beside the point. SoftBank investors can find their own leveraged exposure to publicly traded U.S. tech stocks without Son’s assistance. The opacity of the deals is also troubling. And with the fund co-mingling Son’s money with the company’s, and Son directing the trades according to the media reports, it’s a strong reminder of SoftBank’s governance shortcomings, which weigh down the valuation.
The market reaction suggests SoftBank shareholders were lulled into a false sense of security about the company’s direction. The stock price had more than doubled over the past six months, after pressure from hedge fund Elliott Management helped kick off a divestment programme that already has exceeded its $41 billion target. Its discount to net asset value – a metric regularly spotlighted by Son – had narrowed to 45% as of its last earnings presentation in August from 63% at the end of March. If he was looking for a cheap tech stock, buying more SoftBank might have been the better bet.
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.