SoftBank’s investment in Alibaba must be one of the most successful of all time. Masayoshi Son, the billionaire chief executive of SoftBank, injected $20 million into the Chinese e-commerce giant in 2000. Today, that 36.7 percent stake accounts for a large chunk of Japanese group’s market value. As Alibaba heads toward an initial public offering, however, Mr. Son’s investment blessing may become a burden.
Alibaba, the owner of the online shopping site Taobao and the Alipay electronic payment system, is still a private company. Based on Alibaba’s limited financial disclosures, Breakingviews estimates that it is worth around $113 billion. That values SoftBank’s stake at $41 billion, or 38 percent of the Japanese group’s total sum of the parts, according to a new Breakingviews calculator.
Many of SoftBank’s other businesses are already listed. Its 80 percent stake in the American cellphone carrier Sprint is valued at $26.5 billion. SoftBank’s 42.5 percent shareholding in Yahoo Japan is worth $15.3 billion. Other stakes in the online games makers GungHo Online Entertainment and Supercell as well as the handset maker Brightstar add up to $7 billion, based on market values or recent purchase prices.
Then there’s SoftBank’s wholly owned Japanese telecommunications business. Apply an industry multiple of 4.4 times earnings before interest, taxes, depreciation and amortization, then strip out the remaining net debt and the equity is worth $19.2 billion. Put it all together, and SoftBank’s parts add up to $109.5 billion.
But investors aren’t giving Mr. Son full credit for his empire, which is broadly focused on the Internet. Though SoftBank shares have more than doubled in the past year, they still trade at 16 percent below the combined value of the company’s parts. Some discount is warranted: SoftBank can’t easily sell. Investors also seem to be overlooking synergies: Together, SoftBank’s Japanese and American telecommunications operations are the world’s second-largest purchaser of network equipment.
The bigger question is Alibaba. Its founder, Jack Ma, sits on SoftBank’s board, but that’s where cooperation appears to stop. For now, the investment is a blessing. SoftBank is one of the few ways for public investors to gain exposure to Alibaba. But that advantage will disappear when Alibaba goes public. At that point, Mr. Son will have to justify tying up more than a third of his company’s value in a minority stake â€" or find a way to part with his most successful investment.
Una Galani is the Asia corporate finance columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
