- Company plans to purchase as much as 14.2% of its stock
- Buyback to be funded by asset sales and cash on hand
SoftBank Group Corp. added 840 billion yen ($7.3 billion) to its market value after soaring by the daily limit in Tokyo on plans for a record share buyback.
The stock rose 16 percent to 5,100 yen on Tuesday, the biggest jump in more than seven years. SoftBank will spend as much as 500 billion yen buying back 14.2 percent of its stock, using cash holdings and the proceeds of asset sales, the Tokyo-based company said in a statement Monday.
Shares of SoftBank have this year dropped to their lowest point since the Japanese wireless carrier bought Sprint Corp. in 2013 as Chairman Masayoshi Son struggled to persuade investors he can turn around the U.S. company. The shares were down 28 percent this year before the buyback announcement, putting SoftBank’s market value well below that of its own investments in companies including Sprint and Alibaba Group Holding Ltd.
“This is a good buyback, considering how low their valuation has fallen,” said Atul Goyal, an analyst at Jefferies Group LLC. “Nothing so bad happened with Sprint and Alibaba to justify the drop in SoftBank shares.”
Under Tokyo Stock Exchange rules, each stock can trade up or down by a predetermined amount each day, a limit set using its previous closing price. SoftBank rose by 700 yen, its maximum increase calculated based on Monday’s closing price of 4,400 yen.
SoftBank’s market capitalization hit 5.28 trillion yen after the close in Tokyo Monday, while the value of its holdings in public companies totaled about 7.7 trillion yen. SoftBank also holds stakes in private companies, including India e-commerce provider Snapdeal and Social Finance Inc., a U.S. online lender.
The massive buyback program, which will take place over the next 12 months, won’t significantly affect SoftBank’s debt position or ratings, Japan Credit Rating Agency Ltd. said in a statement Monday. SoftBank, saddled with about $100 billion of total debt, said it won’t resort to more loans to fund the program.
SoftBank had about 2.8 trillion yen of cash and equivalents as of Dec. 31 although its total debt amounted to 12.3 trillion yen, according to data compiled by Bloomberg. The group has received about 300 billion yen from dividends and the sale of investment securities in the past year, it added. The company is now considering further asset sales to help pay for the buyback, said Hiroe Kotera, a spokeswoman for SoftBank.
“Considering the current share price level, we deemed this a good timing to pay back shareholders,” Kotera said. She didn’t specify what assets SoftBank may sell.
Central to the stock’s under-performance has been Sprint, SoftBank’s biggest overseas investment after its stake in China’s Alibaba. Sprint’s shares have fallen 27 percent this year, while those of Alibaba have fallen 25 percent.
Sprint, which had been hemorrhaging cash over the past year, increased its cash and equivalents by almost 12 percent to $2.2 billion in the December quarter. The U.S. company also increased its profit forecast, calling for earnings before interest, tax, depreciation and amortization of as much as $8 billion in fiscal 2016.
“This is a big surprise for the market,” said Satoru Kikuchi, an analyst at SMBC Nikko Securities Inc. in Tokyo. “It will take about a year for the markets to believe in Sprint’s turnaround scenario.”
SoftBank’s buyback can be compared with the buyback strategy of Berkshire Hathaway Inc., said Jefferies’ Goyal.
The company headed by Warren Buffett, for whom Son has publicly expressed admiration, has said intrinsic value, a metric that accounts for the amount of cash that can be taken out of a business in its lifetime, is the best tool for evaluating the company.
“They don’t need shares to acquire companies, but the sum of parts is much greater than the current price, which is absurd,” Goyal said.