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SoftBank's woes are mounting

This week, SoftBank's planned $40 billion sale of Arm, a chip designer, to Nvidia, a Silicon Valley chipmaker, fell apart because of regulatory setbacks

By Maureen Farrell
Published: Feb 11, 2022

SoftBank's woes are mountingMasayoshi Son, chairman and chief executive officer of SoftBank, with Marcelo Claure in Idaho in 2018.
Image: David Paul Morris/Bloomberg via Getty Images

For the past decade, SoftBank and its founder, Masayoshi Son, grabbed headlines mainly for the Japanese conglomerate’s eye-popping investments, becoming a fixture in the American technology scene by spending freely on startups and fundamentally reshaping how such companies had been funded.

There was the world’s largest tech investment fund. The billions of dollars pumped into coworking giant WeWork. And Son’s splashy purchase of one of Silicon Valley’s priciest homes.

Now, the bad news is piling up.

This week, SoftBank’s planned $40 billion sale of Arm, a chip designer, to Nvidia, a Silicon Valley chipmaker, fell apart because of regulatory setbacks. Shares in a handful of Big Tech companies that SoftBank owns stakes in — from Chinese internet giant Alibaba to food-delivery service DoorDash — have plunged in recent months amid a wider sell-off in high-growth tech stocks. And one of Son’s key deputies, Marcelo Claure, left the firm in January after a bitter pay dispute — the latest senior executive to depart the firm in the past year.

The slump in SoftBank’s fortunes was reflected in its latest earnings report. The firm said its quarterly earnings fell 97% from a year ago, although it managed to eke out a small profit of $251 million during the three months that ended Dec. 31. SoftBank’s shares, which trade publicly in Tokyo, stayed relatively flat this week, although they are already down by more than half in the past 12 months, as investors grow increasingly wary of SoftBank’s big bets that haven’t paid off.

Son, who is also SoftBank’s CEO, acknowledged the firm’s troubles, especially its technology stock holdings. “The storm has not ended; the storm has gotten stronger,” he said in an earnings presentation. Still, he remained upbeat on the firm’s prospects, saying that their latest investments put SoftBank at the center of the artificial intelligence “revolution.”

SoftBank’s performance also reflects the firm’s transformation in recent years from an operator of companies, mostly in telecommunications, to an investor in so-called disruptive technology companies, said Pierre Ferragu, an analyst at New Street Research.

Founded in 1981, SoftBank has been one of the biggest backers of startups in the United States and globally. After riding the 1990s dot-com boom and bust, Son largely retreated from American shores until the 2010s.

One of the first signs of his reemergence came in 2012 when he purchased an estate in Woodside, California, for $117 million — one of Silicon Valley’s most expensive homes. He then bought a majority stake in the mobile carrier Sprint in 2013 for roughly $22 billion, installing Claure as CEO the next year. Sprint later merged with T-Mobile.

By 2017, Son had raised $100 billion for the Vision Fund, billed as the largest technology fund ever. With nearly half the money coming from Saudi Arabia, it was SoftBank’s vehicle for massive investments in high-growth tech companies such as Uber, DoorDash and WeWork.

Many of those investments are struggling in the public markets now because investors are selling tech stocks, concerned about interest rates rising soon. When rates go up, they put future growth in doubt, and tech companies, which are all about fast growth, are the first to get hit.

Coupang, an e-commerce giant that is South Korea’s answer to Amazon, is down nearly 40%. Didi, China’s ride-hailing company, has fallen even further, down roughly 70% — partly because of that country’s crackdown on its tech giants. SoftBank owns stakes in both companies, which trade on U.S. exchanges although Didi plans to move its listing to Hong Kong. Although SoftBank invested far below the initial public offering price of DoorDash, the online food-ordering company — one of the best performing stocks in 2021 — is now trading around its IPO price.

The share price of SoftBank’s biggest holding, Alibaba, has dropped about 60% from its October 2020 high. SoftBank put more than $10 billion into WeWork, which went public last year and is now trading at less than $6 billion. And after the Arm deal with Nvidia collapsed, SoftBank plans to take the chip design company public instead.

“Even if they’re going through this pain at the moment, they’re still actually in the black,” Ferragu said of the firm’s latest results.

SoftBank has seen its share of internal turmoil, too. In recent months, at least four senior investors have left or announced plans to leave.

Last month, SoftBank also lost Claure, one of its most high-profile executives, after an acrimonious compensation battle. Claure, once a key deputy and close confidant of Son’s, had argued that his boss had promised to pay him $2 billion over several years for his current and future work.

The two men were so close that Claure once prepared a slide for an investor presentation containing an image from the 1988 movie “Twins,” starring Arnold Schwarzenegger and Danny DeVito — except that the faces of Claure, who is about 6-foot-6, and Son, who is roughly a foot shorter, were superimposed on the images of the two actors, according to two people who viewed the presentation.

Claure was also a big spender, often traveling by private jet and known to regularly rack up annual corporate expenses in the high seven figures, according to three people familiar with his spending. One of the reasons he flew on private jets when he was executive chair of WeWork was that SoftBank’s security team determined he was at high risk, one of the people said.

In an investor presentation this week, Son thanked Claure for addressing challenges at Sprint and WeWork, but Son said that since SoftBank’s business model was evolving, it made sense to part ways with Claure.

Still, a hint of the acrimony was evident in late December, when Claure said in a Twitter post: “People don’t leave their jobs or their companies. They leave their bosses. Treat the people who work for you right.”

©2019 New York Times News Service

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