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SoftBank is committed to prioritizing investments in artificial intelligence and has no plans for an immediate share buyback, despite pressure from activist investor Elliott for a $15 billion capital buyback program.
In an interview with the Financial Times, SoftBank’s chief financial officer Yoshimitsu Goto said the company’s strengthened balance sheet would be best deployed in its pursuit of AI deals.
“We believe this is a time when new investment activities need to take place that will form the foundation for SoftBank Group’s future growth,” he said, declining to comment on specific exchanges the company had with Elliott.
Elliott, which declined to comment, recently rebuilt a stake of about $2 billion and has pressed SoftBank to announce a share buyback when it reports first-quarter results in August, people with knowledge of the matter said.
However, founder Masayoshi Son said at SoftBank’s annual general meeting last month that the group’s past investments – including some disastrously large bets by its Vision Funds on startups such as WeWork – were merely a “warm-up” for the next phase in AI and described share buybacks as “small things”.
Elliott has argued that buybacks would boost returns on equity and narrow the substantial discount between the value of SoftBank’s asset portfolio and its market capitalization, according to people familiar with the position. Elliott also believes the group has the balance sheet strength to return capital to investors while pursuing AI deals.
SoftBank’s current loan-to-value ratio, which provides a window into how much risk the group is taking and is a key benchmark for Son, is close to 8.5 percent, a level Goto said may be “too safe.”
Goto did not rule out share buybacks in the medium term, as shareholder returns remain a key part of his considerations and markets could change in the coming months. However, he said the short-term direction of SoftBank’s capital spending was set.
“We don’t need to be so safe and we need to be more challenging,” Goto said. “That’s why Masa says now is the time to invest.”
Elliott’s buying campaign echoes its approach in early 2020, when it built a stake worth about $2.5 billion in SoftBank.
SoftBank eventually launched a share buyback program the same year it went “defensive” and sold assets to reassure shareholders in light of the Covid-19 pandemic.
This time around, SoftBank is back on the offensive, seeking AI deals to support the company’s crown jewel, UK-based chip designer Arm. According to Goto, this plan has been accepted by many investors he spoke to.
The group’s share price has also risen more than 75 percent this year to record highs.
However, during the recent general meeting, support for both Son and Goto declined.
Son, who owns 30 percent of SoftBank’s shares, received 79 percent of the vote, compared with 96 percent a year earlier, after proxy adviser ISS recommended a vote against the billionaire due to “unfavorable return on equity.” Goto received 89 percent, down from 98 percent.
According to Goto, Son’s shareholding and excessive reliance on a large number of private bondholders also provided SoftBank with protection from activist demands.
“So while other companies might react strongly to the word activist, we might not be the same as them.”
Goto separately underlined that SoftBank was ready to do “big deals” and suggested that power generation and data centers were two areas ripe for investment. However, the CFO reiterated that he would protect his balance sheet by using project financing or non-recourse loans.
“Because Masa is thinking about such big pictures and the big solution, his movement may be slower than before,” Goto warned.
Deal-making is starting to pick up. In May, SoftBank led a more than $1 billion investment in British self-driving car startup Wayve, marking the largest AI deal in Europe to date. The company is also in talks to buy British chip designer Graphcore, according to people familiar with the matter.