Paul Singer’s Elliott Management Corp. has accumulated a $2.5 billion position in Japan’s SoftBank Group Corp. and is pushing the conglomerate and its founder, Masayoshi Son, to buy back shares and improve its corporate governance, according to sources familiar with the situation.
The insurgent’s push at Softbank comes as the super-sized investment firm deals with the implosion of its investment in WeWork Cos., the office-sharing company that postponed its IPO plans following a series of scandals associated with its founder, Adam Neumann.
In addition, Michael Ronen, a major U.S. executive at SoftBank’s $100 billion Vision Fund, reportedly has announced his resignation after expressing concerns about the company. In addition, Tadashi Yanai, founder of Uniqlo’s parent company, stepped down in December from SoftBank’s board.
In a statement, Elliott said its substantial investment in SoftBank reflects its “strong conviction” that the market significantly undervalues the company’s portfolio of assets. “Elliott has engaged privately with SoftBank’s leadership and is working constructively on solutions to help SoftBank materially and sustainably reduce its discount to intrinsic value,” the statement said.
Yet a campaign escalation if Son doesn’t follow Elliott’s suggestions could be difficult to accomplish for a variety of reasons. While SoftBank isn’t one of Japan’s “Keiretsu” companies, with interlocking business relationships and shareholdings, Son owns a 27% stake, which would mean that Elliott would need to obtain the support of a huge supermajority of the remaining shares if it were to launch a director contest. In addition, major decisions at the company require approval by a vote of two-thirds of shareholders, according to a report.
Elliott has not made any public indication it wants to force SoftBank to divest assets. According to The Wall Street Journal, which reported the investment Thursday, Elliott wants more transparency and better management of investment decisions at the Vision Fund.
A director contest coupled with a push to divest assets or positions, however, could result in Elliott running afoul of Japan’s new foreign ownership regime, which is still in the process of being set up.
Investors that own more than 1% in listed companies considered to be vital to Japan’s national security could be required to notify government regulators of their allocation. Regulators could require investors to cancel their director contest and even liquidate their position.
It is unclear whether SoftBank would qualify as a company deemed to be of vital national security interest to Japan. In addition, investments before adoption of new rules could be grandfathered and not qualify for the new review process.
Still, a shortage of independent directors on SoftBank’s nonexecutive board might be a weak spot that Elliott could exploit. According to relationship mapping service BoardEx, a sister company to The Deal, only two of six directors on the nonexecutive board are independent.
It’s also possible that Elliott could push SoftBank to divest some of its large minority stakes in technology companies such as Sprint Corp. (S), Alibaba Group Holding Ltd. (BABA), Uber Technologies Inc. (UBER) and Slack Technologies Inc. (WORK).
But even if Japan doesn’t block Elliott, the firm may be apprehensive about launching a director fight in Asia after its failed effort to install directors last year at South Korea’s Hyundai Motor Co. so as to force a major dividend payment.