SoftBank's Biggest Name Is One Son Dare Not Mention

(Bloomberg Opinion) -- SoftBank Group Corp.’s chairman took to the stage Wednesday afternoon to gloat about the company’s return to profit in a horrible year and to name drop some of the wonderful companies in his orbit.

But the most important name of all was missing: Paul Elliott Singer.

Getting top billing in Masayoshi Son’s earnings presentation was Alibaba Group Holding Ltd., which netted the Japanese company a 331.9 billion yen ($3 billion) paper gain for the fourth quarter, and telecom arm SoftBank Corp., contributor of 244 billion yen in operating profit. Sprint Corp. also added to the bottom line, though investors were more excited Wednesday about the long-awaited approval of its merger with T-Mobile US Inc.

Son couldn’t escape mentioning WeWork, formally know as The We Co., because it’s the elephant in the room weighing down the Vision Fund and by extension all of SoftBank. The $100 billion fund now has 88 portfolio companies.

But Elliott Management Corp., the investment firm founded by Singer, was conspicuous by its absence in Son’s vocabulary. As a result, his evasion became an unintended key feature of his entire live performance.

The famous activist investor was still there, writ large in a statement titled “SoftBank Group Adopts Enhanced Governance Standards for Investments.” Just last week, Elliott confirmed it had taken a nearly $3 billion stake in SoftBank because it saw room to close the gap between the value ascribed by equity investors and what its own balance sheet indicates.

That news helped drive SoftBank’s share price up 8% for the largest gain in a year, a jump that was topped just a few days later when the merger of the two U.S. telecom firms passed the final hurdle.

Elliott has three key strategies that it hopes SoftBank can implement to boost the stock: a $20 billion share buyback, more independent directors, and better corporate governance, especially with regard to its investments.

SoftBank’s press release on the governance, though, looks to be lip service rather than any kind of deep-seated reform. The four paragraph statement used the term standards eight times, but doesn’t actually detail what they are. We’re required to have faith that they exist and are robust. This new corporate governance policy wasn’t mentioned in the 83-page financial statement, and Son didn’t provide any details during two hours on stage.

It wasn’t until two minutes from the end of Son’s set remarks that he even acknowledged Elliott, and then not by name but merely as “an activist investor.” He used the reference simply as proof that his pet peeve — that SoftBank’s share price severely lags its book value — was shared by others.

Only during the Q&A session did Elliott’s name first get mentioned — by a reporter.

Son’s response, and many that followed, were consistent in dodging not only Elliott’s core demands but in recognizing that the U.S. fund even had a valid point. He demurred on the topic of buybacks, noting that they'd been done in the past. He claimed to have had plans to appoint more independent directors even before Elliott brought it up. He indicated that improving standards was already on the radar.

Investors hoping for some contrition after the WeWork disaster — which saw SoftBank bail out the office rental company after an aborted IPO — would be sorely disappointed. Anyone believing that Son might suddenly discover the importance of enhanced management standards is naive. In his own words, corporate governance of startups is exercised by simply not investing in a problematic company.

About the closest Son got to acknowledging any weaknesses in his strategy of making huge bets on unprofitable companies in the hope they’ll come good was to admit that he’d dialed back the size of the planned $108 billion SoftBank Vision Fund 2 — a possibility I foreshadowed last month. Smaller and more circumspect bets may now be on the table.

Even before this second act, investors will need to contend with the more immediate fact that the Alibaba IPO was a one-time bonus, while the rest of SoftBank’s portfolio is at the mercy of stock markets at a time when the coronavirus epidemic is sending share prices on a roller-coaster ride.

So while people may have high hopes about the role Elliott could play in spurring SoftBank to change its ways, they ought to take note of the fact that Son barely utters the name.

To contact the author of this story: Tim Culpan at tculpan1@bloomberg.net

To contact the editor responsible for this story: Patrick McDowell at pmcdowell10@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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