Billionaire Paul Singer Goes Activist On SoftBank, Demands More Buybacks

When legendary hedge fund activist Paul Singer picks a target, he doesn’t usually lose. He has triumphed over governments – Argentina and the DRC – and swallowed up companies – Barnes & Noble. And now he’s setting his sights on a national champion of the world’s third-largest economy.

Though it has been weakened by a string of high-profile portfolio blowups (remember Zume, the robot-pizza company?), SoftBank remains one of Japan’s biggest and most prominent conglomerates, with operations spanning the worlds of tech, telecom and VC investing.

Paul Singer

Singer believes SoftBank is a good deal. He reportedly believes the company’s stock is undervalued thanks to the blowback from the WeWork IPO unraveling. SoftBank reportedly agreed with this sentiment, saying “our shares are deeply undervalued” on Thursday. But we suspect this is where any agreement between Singer and SoftBank Chairman Masayoshi Son end.

As WSJ reports, Elliott wants to make major changes at SoftBank to help boost profits. These include tightening up corporate governance, which would inevitable limit Masa’s influence over the company he founded. Among other things, Elliott wants SoftBank to increase its buybacks right away.

The discussions with the company’s leadership have focused on ways to improve its corporate governance. This includes a call for more transparency and better management of investment decisions at its $100 billion Vision Fund, according to the people. Elliott has pushed for SoftBank to buy back $10 billion to $20 billion in shares and help close a yawning gap between the company’s market value and the value of stakes in companies in which it has invested.

“We are in complete agreement that our shares are deeply undervalued by public investors. SoftBank welcomes feedback from fellow shareholders,” said a SoftBank spokeswoman.

“Elliott has engaged privately with SoftBank’s leadership and is working constructively on solutions to help SoftBank materially and sustainably reduce its discount to intrinsic value,” said an Elliott spokeswoman.

SoftBank’s failures over the past year have reportedly angered many inside the company who blamed Masa for recklessly endangering the company (and their performance-linked compensation).

We suspect Singer will exploit these divisions to help implement his vision for SoftBank – whatever that vision may be. Right now, SoftBank is reportedly one of Elliott’s largest bets, with the firm’s position constituting roughly 3% of SoftBank’s market cap at current prices. Senior Elliott personnel have met with SoftBank management.

The market has spoken: SoftBank ADRs were up 10%+ on the news that Singer is about to walk into the thunderdome with Masa.

However, we’d advise Singer to exercise caution. The Japanese government doesn’t appreciate it when foreigners try to toy with its flagship corporate titans. If Singer isn’t careful, he might soon find himself sitting in Carlos Ghosn’s old cell.