SoftBank's decision to split into two divisions amounts to a savvy move by founder Masayoshi Son to unshackle the future of his 35-year old company from the Japanese roots that could hold it back.
Under a new structure announced Monday, SoftBank Group Corp. gets divided into a domestic business with its own CEO (Ken Miyauchi) and about 1.2 trillion yen ($10.6 billion) in assets that includes its stake in Yahoo Japan. Group President Nikesh Arora will be CEO of the international division with 8 trillion yen in holdings that include a 32 percent stake in Alibaba and its majority ownership of Sprint.
Such a move has been on the cards since May when SoftBank outlined its holding company strategy and announced Arora's appointment as president. At the heart of the plan is what it describes as a "transformation from a strong Japanese business with global assets, to a global business which will strive to create sustainable growth for the very long-term."
With two dozen holdings in its portfolio, including Groupon, Weibo and Snapdeal, SoftBank is in effect a serial investor that tries to distinguish itself from the short-term approach of venture capital. In an interview with Bloomberg News last year, Arora used the term ``permanent capital" to describe the approach. “We don’t have a time horizon and a gun at our head that says you’ve got to create a return in five years, seven years,” he said.
What SoftBank does have is a pair of Japanese handcuffs. With Son's blessing, Arora wants to make big deals in companies with long futures. He's less interested in dabbling in $5 million or $50 million investments, instead preferring to use SoftBank's heft to take $100 million, $500 million or even $1 billion stakes in startups.
Yet, as was discussed in a Gadfly column last week, Japan produces few startups and thus gives Arora few tables on which to place his chips. At the same time, it's a Japanese company with Japanese executives, Japanese culture and one-third Japanese money.
In the past year, SoftBank has been involved in 10 deals worth $100 million or more, including its $1 billion investment in South Korean e-commerce provider Coupang. Only one of those was Japanese.
A native of India and a former Google executive, Arora is an outsider in a country not accustomed to accepting outsiders into its Tokyo C-suites. While Son has welcomed Arora with open arms and the executive himself has made a 60 billion yen personal bet on SoftBank, friction between the local old guard and the new team was inevitable.
For the domestic team, the split gives CEO Miyauchi a more even playing field. Instead of fighting with and being compared to the big bets and strong returns afforded Arora's global beat, he can benchmark his performance against other Japanese players that have more moderate expectations. For SoftBank's public shareholders, the separation should result in greater transparency of the group's Japanese business.
By splitting the company in two, Son has recognized a financial and culture cleavage that few Japanese leaders have dared face. He's given both factions their own sandpit to play in rather than try force a unity that could distract from SoftBank's greater goal.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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