Re MAC losses: more venom from The Economist
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A cloud over Son
IF YOU want a sense of how badly Softbank needed cash, and of the lengths it will go to get it, the place to look is America. Masayoshi Son has a reputation as a visionary. If Ziff-Davis is anything to go by, he is a shrewd financial operator too.
One trick was to shuffle $1.5 billion in debt from Softbank?s balance sheet on to Ziff-Davis?s when the American company floated. This was more than Ziff-Davis could support from its operating profits. Within eight months of the flotation, Ziff-Davis had to renegotiate covenants on its bank loans. Even so, Ziff-Davis last year announced a ?restructuring? that involves piecemeal disposals of most of its businesses?with losses of some $1.25 billion.
Mr Son also had a cavalier attitude to corporate governance. When Ziff-Davis was bought in 1996, some of its businesses went not to Softbank, but to MAC, the private firm through which Mr Son then held most of his stake in Softbank. These businesses were mostly in their ?development? phase (ie, loss-making).
As MAC owned the businesses, their losses were hidden from Softbank?s shareholders. In 1998 Mr Son sold them back to Ziff-Davis for precisely what he had paid for them?odd, given the volatile values of high-tech business. Most of Ziff-Davis?s subsidiaries have fallen dramatically in value since their flotation nearly two years ago.
Mr Son has found it hard to kick his habit of creative accounting. In 1999, after MAC had been merged into Softbank for the sake of ?corporate transparency and disclosure?, Ziff-Davis bought ZDTV, a cable-television company and integrated website, from MAC Holdings (America), another private company controlled by Mr Son. Yet ZDTV had been run as if it was one of Ziff-Davis?s subsidiaries. Because legally it was not, its trading losses did not appear in either Ziff-Davis?s or Softbank?s accounts. These losses amounted to $47.5m in the year to December 1998, compared with Ziff-Davis?s operating profits of $31.1m and Softbank?s operating profits of ¾12.1 billion ($100m).
Investors in Softbank would do well to remember two things. First, The Economist has discovered the full extent of dealings between Mr Son?s private empire, Softbank and Ziff-Davis only because of the disclosure rules set by American stockmarket regulators. These are more stringent than the rules in Japan. Second, although MAC no longer exists, the financial engineers who dreamt up the structure still work for Softbank.
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