Sunday August 20 12:21 AM EDT
Softbank Sinks Deeper in the Tank
By Michele Yamada
(The Industry Standard)
Three months ago, Softbank President Masayoshi Son announced a brash plan to revive his company's languishing shares: He would float Softbank's five business units in separate IPOs on the Tokyo Stock Exchange.
It was a surprising move, considering that the Nikkei stock index was at its lowest point in a year, and the Japanese market had not taken kindly to Internet-related issues since U.S. stocks plunged in April. Softbank was feeling the pain; when Son announced the IPO plan May 26, its shares had fallen about 37 percent from 28,590 yen just three weeks earlier.
The billionaire poster boy of Japan's new economy contended that the five divisions - which focus on finance, e-commerce, marketing, media and broadband - could operate more freely and raise capital more easily as semi-autonomous entities. Yoshitaka Kitao, president of Softbank Finance, reportedly backed the scheme in part because he wanted a freer hand to run his corner of Son's empire.
But Softbank scuttled the plan July 31, further straining its financial health. A company spokesperson says the firm decided to yank the IPOs to "maximize the corporate value of the entire Softbank group." The reality is the markets viewed Son's ploy as a bad idea. Listing the five divisions would distort the value of the overall group, analysts say, and investors would question the benefit of owning the shares of the diluted parent company.
The scheme also fell victim to the market volatility that's dampened prospects for all IPOs in Japan. The Nikkei index dipped to a 17-month low the week that Son pulled the plug on his IPOs. Other Japanese firms, such as software maker Softbrain and the Hikari Tsushin-affiliated mobile-phone company Nextel, have also recently shelved IPO plans. Lawson, a convenience-store chain, came to market July 26 with the largest flotation on a Japanese stock exchange since 1998. But the shares ended the first day of trading below the offering price. Investment bankers here worry that many other deals will be put on hold.
"Many dot-com-related companies here seem to be waiting and seeing if they can come up with better financial results for the year before moving onto their IPOs," says Hiroshi Yamashina, Internet analyst at Goldman Sachs.
That's more bad news for Softbank, which depends on IPOs to generate cash for its operations. It is in the process, for example, of spending about $455 million - largely in cash - to acquire 49 percent of the failed Nippon Credit Bank. "There's no cash flow in the IPO market now," says Yamashina. "That's why Softbank had to sell shares of its holdings like Yahoo."
On June 1, Softbank America sold about 3 million Yahoo shares - roughly 2.5 percent of its stake - for about $350 million.
All these moves - selling assets, buying a bank, attempting spinoffs - have caused confusion about Softbank's direction. "It's been very difficult to figure out the capital strategy of Softbank," says Masatoshi Sato, a strategist at Kankaku Securities in Tokyo. Softbank, he says, has not adequately explained where it is going and how it is going to get there.
Softbank says it will forge ahead with its plans to seek Japanese listings this year for some companies in its portfolio, including E-Trade Japan and Asia Global Crossing. The markets will be watching those IPOs closely. If they don't fly, the outlook could become even bleaker for Japan's most important Internet company. |
