Japan-based SoftBank Group has operations in broadband, fixed-line telecom, e-commerce, internet, technology services, finance, media and marketing, semiconductor design and other businesses, including robotics and a baseball team.
The firm has just agreed to buy one of the world’s largest alternative investment managers, Fortress Investment Group, for $3.3bn, on top of shortly expecting to close, at $100bn, the technology-focused corporate venturing SoftBank Vision Fund. The Fortress acquisition is taking place just five months after SoftBank completed its purchase of UK-listed chip designer Arm, paying $31.4bn, which is just a bit more than it paid when it bought 80% of US phone operator Sprint in mid-2013.
Only SoftBank’s founder and CEO, Masayoshi Son, and the company’s core executives are privy to the unifying strategy underlying these developments, but perhaps some inferences may be drawn. SoftBank could be seen as building a capability to see and understand full public and private dealflow while securing the financial tools to capitalise on insights gathered from trends identified in its operational businesses, such as Sprint or Arm.
Corporate venturing on steroids
The vision is effectively corporate venturing on steroids, involving the application of corporate strengths in operational performance and technology roadmaps paired with financial execution and an ability to make money as the cycle shifts up and down.
In this respect SoftBank may be considered more of a Google, Tencent, Alibaba or Baidu rather than a private equity-style conglomerate such as Blackstone Group or Berkshire Hathaway.
As Global Corporate Venturing news editor Robert Lavine noted in a GCV newsletter, by buying Fortress, SoftBank gains a stake in Lyft, the ride-hailing platform valued at $5.5bn as of late 2015, a few months after Fortress contributed to its series E round.
SoftBank already holds a portion of ride-hailing peers Ola, Grab and Didi Chuxing, and the Lyft stake means SoftBank is backing all Uber’s main competitors worldwide. That is a classic venture-based approach to a large new market that is under development.
SoftBank’s push into autonomous cars
SoftBank has explored the changing transportation market through its existing businesses. Most recently, in September 2016, after it completed its acquisition of ARM, the chip designer announced that its new processor design would be used in autonomous cars, a market that most ride-sharing services want to understand or utilise.
Before that, in July 2016, SoftBank partnered carmaker Honda to bring artificial intelligence to connected cars. SoftBank has already built a humanoid robot called Pepper, which can converse with people and recognise their moods, while Honda has its own mobile robot, Asimo.
And prior to that, in January 2016, Sprint customers learned of Ride-Fi, a technology launched by mobile phone manufacturer Alcatel Onetouch, which enables users to transform their cars into mobile hotspots and connect up to eight devices to 4G long-term evolution wifi.
As these examples illustrate, given the range and reach of its businesses, SoftBank is in a unique position to see all the major industries that are being disrupted. And SoftBank has the funds to merge or pull assets into different areas to capitalise fully on technological change.
Add the payments, blockchain and media content being developed by SoftBank-affiliated portfolio assets to the hypothetical car-centred computing platform it is building, and the scope of the company’s potential becomes almost beyond comprehension – and what is more, here we are considering SoftBank’s competitive advantage in just one market.
The value of time and patient capital
All that said, time and patient capital are required to execute on this potential, which is why the $100bn SoftBank Vision Fund is likely to add crucial ballast and stability to SoftBank’s strategy, as it is marked out by Son and his senior executives, including Ron Fisher, Alok Sama, Rajeev Misra and Jonathan Bullock.
The Fortress acquisition will reinforce SoftBank’s access to patient capital. And the firm has done well for its limited partners, if not for the public shareholders who bought in at the time of Fortress’s initial public offering.
First, some historical background on Fortress may be warranted. Let us turn the clock back to the summer of 2013, which was about the time when SoftBank last ramped up its investing. It was around then that Fortress was advising people to sell rather than buy assets.
A few months later, in February 2014, Japan-based bank Nomura heeded the signal. In a risk management effort, Nomura sold back a stake in Fortress Investment Group for about $6 a share, or $363m in total, which was $500m less than it had paid eight years earlier. The Japanese bank had acquired 15% of Fortress in December 2006, paying $888m. But following Fortress’s February 2007 listing at $18.50 a share, the firm’s share price dropped, falling to a low of 95 cents in fewer than 24 months.
The decline is especially steep given the whopping $35 a share price point achieved in the first day after Fortress’s flotation, which one banker at the time called the “coming of the age of the alternative investment management company”.
Fast-forward to today. SoftBank has agreed that Fortress shareholders will receive $8.08 per share, a premium of 38.6% to the closing price on February 13.
The variations in share price since Fortress’s IPO reflect market sentiment concerning the company’s likely future earnings. But these share price variations have done little to capture the firm’s continuing ability to grow assets under management across a wide range of products and pools of capital in the near 20 years since Fortress’s formation in 1998.
To be sure, Fortress has been an incredible vehicle for personal wealth generation. Ten years ago, Fortress’s share price rise after its first day of trading valued the stock of the five main principals at the time – a group that includes co-founder Robert Kauffman and former president Michael Novogratz – at $9.7bn. That sum was on top of the $1.7bn they received in distribution and share sales in the previous year, when the share price climbed nearly 90% from the top-of-the-range IPO price of $18.50 to $35.
But in today’s market, the three remaining leaders of Fortress will reap a combined $1.39bn from the sale of the alternative asset manager to SoftBank, newswire Bloomberg said in its analysis of the deal.
At the $8.08 a share offer price, and given the most current ownership stakes that have been publicly disclosed, the holdings of co-chairmen Pete Briger and Wes Edens are worth $510m and $511m respectively, while CEO Randy Nardone’s class A shares are worth $371m, Bloomberg reported. Briger, Edens and Nardone will continue to lead Fortress, and will invest half of their after-tax proceeds received from the sale in Fortress funds, Bloomberg reported.
Taking some money off the table and recommitting it to their investment prowess seems a sensible step for Fortress, but SoftBank’s expectation is that the synergies can deliver far more.
As Son said: “For SoftBank, this opportunity [to buy Fortress] will immediately help expand our group capabilities, and, alongside our soon-to-be-established SoftBank Vision Fund platform, will accelerate our SoftBank 2.0 transformation strategy of bold, disciplined investment and world-class execution to drive sustainable long-term growth.”
If Son is proven right about the benefits of the Fortress deal, it will be some legacy to leave – not just for SoftBank, but also for the broader innovation capital ecosystem, as it demonstrates the level of ambition that has now become feasible.
OneWeb to connect to Intelsat for $13bn
US-based satellite operator OneWeb will try to merge with one of its founding investors, Nasdaq-listed, Luxembourg-based peer Intelsat, in an all-stock deal worth about $13bn of equity and debt. Telecoms conglomerate SoftBank will invest $1.7bn to acquire a 39.9% stake in the combined company, paying about $5 a share for common stock.
The OneWeb-Intelsat merger is subject to a successful debt exchange, whereby 85% of Intelsat’s bondholders agree to cut its debt by $3.6bn – leaving the merged entity with about $11.4bn of debt – in exchange for shares in the combined business.
Intelsat has a market cap of $740m after a fall in its share price following news of the merger. The company posted $551m in annual revenue for last year.
In December 2016, SoftBank agreed to invest $1bn in OneWeb as part of a $1.2bn round that included several other corporates, all existing investors in the company.
Mobile chip maker Qualcomm, aerospace group Airbus, beverage producer Coca-Cola, conglomerates Virgin Group and Bharti Enterprises, cable and internet service provider Totalplay, as well as satellite services companies Hughes Network Systems and Intelsat also participated in December’s round.
Airbus, Virgin, Bharti, Qualcomm, Coca-Cola, Intelsat, Hughes Network and Totalplay previously invested $500m in OneWeb in June 2015, after Virgin and Qualcomm had supplied the company’s initial funding the previous January.
Greg Wyler, founder and chairman of OneWeb, said of the merger plans with Intelsat: “We want to thank SoftBank, Qualcomm, Grupo Salinas and our tireless, hyper-dedicated, mission-driven team for helping to make this vision a reality. Our initial investing partners – including Airbus, Bharti, Coca-Cola, Hughes, Intelsat, MDA, and Virgin – have been incredibly supportive during the process.”
Wyler added: “In early 2018 we will launch an initial 10 production satellites, which, pending a detailed test regimen, will become the first of our fleet. Six months later we will begin our full launch campaign and start providing low latency broadband access as early as 2019.”
Founded in 2012, OneWeb is building a network of 720 low earth orbit satellites that will provide internet coverage across the world. OneWeb claims its service will boast “industry-leading speed and performance”, as well as lower latency, at an affordable price.
This is the third big satellite deal move in the past month following Google selling its Skybox business, acquired for $500m in mid-2014, to Planet, and listed company DigitalGlobe combining with peer MacDonald, Dettwiler and Associates.
