Hi, Andrea, here is the article from WSJ, I got it from John Carragher of the Yahoo thread. (By the way, how can you format text into tables !!)
February 3, 1999
Softbank Hits $12 Billion Jackpot
On Its Various Internet Stakes
By GEORGE ANDERS
Staff Reporter of THE WALL STREET JOURNAL
In the booming world of the Web, the investor with the biggest gains can't
be found in Silicon Valley or New York. Instead, the big Tokyo software
company Softbank Corp. is leading the pack -- with about $12 billion in
unrealized gains to date.
Along the way, it is emerging as a big behind-the-scenes force shaping a
flurry of Internet deals and the future of the Web.
Softbank's latest jackpot came last week, when Yahoo! Inc. agreed to buy
GeoCities Inc., the leading provider of free Web pages to users. Softbank
owns more than 20% of both companies. Shares of both companies
soared on the news, causing Softbank's own stakes to jump by more than
$1 billion in value.
How Softbank Hit the Internet Jackpot
Investment - Average - Current -Stake -Portfolio
Cost - price -gain in
per share- per share -millions
Yahoo! - $12.09 - $322.94 - 30.0% - $9,210.0
E*Trade - 12.79 - 58.25 - 27.6 - 1,420.0
GeoCities - 7.33 - 103.93 - 22.4 - 681.0
Yahoo Japan - 438.00 - 128,000.00 - 60.0 - 307.0
Ziff-Davis - 14.28 - 17.00 - 72.2 - 196.0
USWeb - 1.81 - 34.31 - 7.8 - 177.0*
CyberCash - 15.82 - 15.06 - 6.2 - (- 0.7)
*Investment by Softbank's venture capital affiliate. Some 76% of these
gains will be credited to outside investors or fund managers; 24% will be
credited to Softbank Holdings.
Sources: Softbank Holdings, WSJ reports
Part of Softbank's good fortune is sheer luck. The company made two
early bets on Yahoo in 1995 and 1996, when the Internet directory
company was tiny. Those $101 million in outlays -- and a later $250
million investment -- have soared in value to more than $9 billion.
"We had very little to do with Yahoo's success," says Gary Rieschel,
managing director of Softbank's venture-capital affiliate. "It's just that
anyone who had a big early position in the Internet has ended up looking
like a genius."
Increasingly, though, Softbank is using its Yahoo connection as the
cornerstone of further expansion. As Softbank makes more Internet
investments, it is enticing smaller companies with the notion that it can help
them work in partnership with all the other companies in the Softbank
stable. The result is an interlinked network of companies that sends
business and resources to one another.
'Tight Group'
"It's a very tight group," says Chris Larsen, chief executive of E-Loan Inc.,
which originates mortgages on the Internet.
Softbank owns a 23% stake in E-Loan, which does much of its online
advertising through Yahoo and E*Trade Group Inc., an online-brokerage
firm in which Softbank holds about a 27% stake.
"We tried other sites, but they didn't deliver to our expectations," Mr.
Larsen says.
Softbank also is emerging as one of the world's few investors willing to
pump $100 million or more into a single Internet company. Most U.S.
venture capitalists blanch at such large amounts; they seldom invest more
than $20 million in a single deal. But with Softbank's huge gains on its
Yahoo stock, it can sell off small fractions of that holding and then reinvest
the cash in another Internet company it likes.
Softbank already has scored big as a deep-pocketed investor in E*Trade,
spending $400 million last summer for its 27% stake. E*Trade's stock was
sagging at the time because other investors believed the brokerage firm's
plans to overhaul its Web site would hurt earnings. But E*Trade has
rebounded smartly, giving Softbank a profit on paper of more than $1.3
billion on its investment.
Other venture capitalists have argued for some time that cash alone is a
competitive weapon on the Internet, as companies scramble to finance
ambitious expansion plans. The companies with the most money are
believed to have the best chance of turning their brands into household
names -- and attracting the huge numbers of customers needed to be
successful. Like a poker player flush with chips, Softbank may be able to
win some showdowns simply by betting more money than its rivals care to
chance.
To pursue new Internet opportunities, Softbank's Japanese management
has given increasing autonomy to a venture-capital affiliate in San Jose,
Calif. There, four partners run a $360 million fund that invests in more than
50 small companies that might later play a bigger role in Softbank's plans.
"We're like a scout ship," says Mr. Rieschel, one of Softbank's venture
capitalists. Softbank provides 4% of the fund's capital and gets an
additional 10% to 20% of the profits. Most of the venture money is raised
from traditional U.S. institutional investors, such as the state of Michigan.
As the venture investments mature, Softbank may consider taking bigger,
direct stakes on its own.
Executives at the Softbank venture-capital affiliate say they are looking
hard for more ways to play the electronic-commerce boom, both in
consumer-oriented markets and in the business-to-business arena. They
hint that USWeb Corp., which helps Fortune 500 companies develop
Web sites, could become a "hub" company in the business-to-business
market, much like the role Yahoo plays in consumer markets. Softbank's
various venture funds at one time owned 50% of USWeb, but have cut
their stake to 7.8% as the company has grown.
'Feel Great'
Not all of Softbank's Internet moves have worked well. The firm and its
venture affiliate have largely stopped investing in companies that want to
sell content over the Internet, after a series of small deals stumbled. "Every
time we'd do a content deal, I'd feel great about it," Mr. Reischel says.
"Then nine months later we'd be trying to figure out who could buy the
company and take it off our hands."
Softbank's investment success also is vulnerable to any pullback in Yahoo
stock. After the GeoCities deal is complete, that one position will account
for more than 80% of the portfolio's unrealized gains. Softbank's chairman,
Masayoshi Son, declined to be interviewed, but in recent weeks he has
publicly disputed the view that Internet stocks are being swept up in a
financial bubble. Instead, Mr. Son has argued, the vast potential of the
Internet provides justification for current price levels.
While analysts don't keep exact track of different investors' Internet results,
they say the only firm that could approach Softbank's gains is Kleiner
Perkins Caufield & Byers, the Menlo Park, Calif., partnership that has
backed Amazon.com Inc., Netscape Communications Inc. and At Home
Corp. U.S. Securities and Exchange Commission filings indicate Kleiner
Perkins has rung up gains of $6 billion to $8 billion on its main Internet
investments. A Kleiner spokesman didn't dispute that number.
Softbank's biggest coup, its 1996 investment in Yahoo, was negotiated
with an off-handedness that still flabbergasts participants. "They put up
$100 million," recalls Tim Koogle, Yahoo's chief executive. "And we
negotiated it all over a pizza dinner in about two hours."
Softbank's current Internet success comes at a handy time for the Japanese
company. In the past five years, Softbank has gone on an acquisition
binge, buying properties ranging from the giant Comdex computer trade
show to the Ziff-Davis magazine empire. Those holdings have posted
mixed results, as has Softbank's original software business. "We don't look
to our operations for cash flow, and none of our Internet investments pay
dividends," Softbank's Mr. Fisher says. "So the only way to get liquidity on
our investments is to sell a small piece from time to time."
Lately, Softbank's Web site has begun posting daily updates on the
company's Internet stakes. Those investments currently are valued at nearly
twice the company's total market capitalization in Tokyo. That suggests
investors haven't spotted the disparity, think Internet stocks are headed for
a crash, or take a dim view of Softbank's other businesses.
Within Softbank, though, Internet optimism shows no signs of cooling.
E-Loan's Mr. Larsen recalls a recent meeting with Mr. Son in which, he
says, the Japanese executive asked him "to think about what you would
want to see happen in your industry. It was almost a Santa Claus wish list.
He said: 'What's the best scenario you can think about? And then how can
we make it happen for you.' " |
