SoftBank enters new phase with successful Arm Holdings IPO

Japanese multinational conglomerate SoftBank (TYO:9984) Group has embarked on a new chapter in its history following the successful stock offering of Arm Holdings (NASDAQ:ARM) last week. The move is expected to significantly bolster SoftBank's shares, according to market analysts.

SoftBank acquired Arm Holdings for $32 billion in 2016 and recently took the company public at $51 per share. The stock price reached a high of $69 before stabilizing, leaving Arm with a market capitalization of around $60 billion. SoftBank still retains about 90% ownership of Arm's outstanding shares, presently valued at around $54 billion.

Pierre Ferragu, an analyst from NewStreet Research, began tracking Arm just before the Initial Public Offering (IPO), rating the stock as a Buy with a target price of $59. Ferragu also covers SoftBank and recently published a report outlining a positive case for investing in the Japanese firm.

According to Ferragu's analysis, Arm comprises roughly 30% of SoftBank's entire portfolio. He also highlights that approximately 74% of SoftBank's total assets are now made up of holdings in public companies. Alongside Arm, these include stakes in Alibaba (NYSE:BABA), SoftBank Corp., T-Mobile, Deutsche Telekom (OTC:DTEGY), and other publicly traded stocks via the company's Vision Fund venture-capital portfolio.

After purchasing a quarter of Arm's shares from the Vision fund for $16 billion and the subsequent proceeds from the Arm IPO, Ferragu estimates that SoftBank now holds about $32 billion in cash. He further speculates that the company has the potential to secure over $21 billion from lenders.

Ferragu suggests that SoftBank has sufficient resources to launch a significant stock buyback program and accelerate its investment pace, particularly focusing on companies specializing in generative artificial intelligence. Given that SoftBank trades at around a 45% discount to its underlying net asset value, Ferragu posits that a $10 billion buyback could be highly efficient, potentially increasing the stock value by an estimated 24%.

On Monday, Arm's shares declined by 9.2% to $55.16, while SoftBank's shares fell by 1.3% to $22.

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