SoftBank plans to continue investing in Artificial Intelligence (AI) and currently rejects a share buyback program, despite demands from activist investor Elliott for a capital return of 15 billion US dollars.
In an interview with the Financial Times, SoftBank's CFO Yoshimitsu Goto stated that the company's strengthened balance sheet is best used for seeking AI deals. "We believe that this is a time when new investment activities should take place, which will form the foundation for the future growth of the SoftBank Group," said Goto.
Elliott, who recently built up a stake of around $2 billion in SoftBank, is pushing for SoftBank to announce a stock buyback program after the release of the first quarter results in August. This was reported by individuals familiar with the matter. Elliott argues that buybacks would increase return on equity and reduce the significant gap between the value of SoftBank's asset portfolio and its market capitalization.
However, SoftBank's founder Masayoshi Son stated at the company's annual general meeting last month that the company's previous investments, including some disastrously large bets by the Vision Funds on start-ups like WeWork, were just a “warm-up phase” for the next stage in AI. He referred to stock buybacks as “small stuff.”
The current loan-to-value ratio of SoftBank is approximately 8.5 percent. Goto described this value as possibly "too safe." Although Goto does not rule out buybacks in the medium term, he emphasized that SoftBank's short-term capital focus is on investments in AI. "We don't need to be this safe and should take on more challenges," Goto said. "That's why Masa says now is the time to invest.
Elliott's demand for buybacks brings to mind the year 2020 when the hedge fund built up a stake of about $2.5 billion in SoftBank and ultimately initiated a buyback program to reassure shareholders during the COVID-19 pandemic. This time, SoftBank is once again actively seeking AI deals intended to support the company's crown jewel, the British chip designer Arm. Many investors that Goto has spoken with accept this plan.
The stock price of the group has risen by more than 75 percent this year and has reached record highs. However, support for Son and Goto decreased at the recent annual general meeting. Son, who owns 30 percent of SoftBank shares, received 79 percent of the votes, compared to 96 percent last year. Goto received 89 percent, compared to 98 percent last year.
Goto emphasized that SoftBank is ready to make "big deals," and cited power generation and data centers as two areas ripe for investment. At the same time, he wants to protect the balance sheet by using project financing or non-recourse loans. "Since Masa is thinking about such big pictures and big solutions, his movements might be slower than before," Goto warned.
In May, SoftBank led an investment of over $1 billion in the British self-driving car startup Wayve, the largest AI investment in Europe to date. Additionally, SoftBank is in talks to acquire the British chip designer Graphcore, according to people familiar with the matter.
