SoftBank Group Corp. shares jumped after the Japanese multinational media and telecommunications conglomerate announced, on Monday, its decision to buy back shares worth $4.4 billion (500 billion yen), in a surprise move.
This would be the company's biggest buyback attempt which amounts to 14.2% of its shares, following its previous announcement of repurchase of ¥120 billion in August which had led to a momentary increase in stock prices. This move has been designed to up their game after the telecom giant got a beating following their first overseas investment of $22 billion in the US mobile subsidiary, Sprint Corp. in 2013. Before the announcement, the company's shares had dropped 28% to its all-time low, which placed them even lower than Sprint and Alibaba Group Holding Ltd. - SoftBank's own investments.
"This is a good buyback, considering how low their valuation has fallen," said Jefferies Group analyst Atul Goyal, as per Bloomberg. "Nothing so bad happened with Sprint and Alibaba to justify the drop in SoftBank shares."
SoftBank Chairman Masayoshi Son is determined to turn the US mobile operator around. To show support and confidence, SoftBank not only increased their stake in the struggling company but also included a phone-leasing company to reduce Sprint's equipment costs. While Sprint's current position in the market weighs heavily on its investor, Mr. Son stated a "perception gap" when asked about the falling stock price, at the same time indicating the shares were undervalued.
According to The Wall Street Journal, an SMBC Nikko Securities analyst, Satoru Kikuchi, reflected that the buyback announcement at this stage "gives a favorable impression that SoftBank is conscious about its shares," and added that, "essentially, SoftBank and Sprint will need to show concrete accomplishments to gain the trust of investors."
SoftBank has categorically stated that the buyback will not be through any debt procurement but through proceeds from sale of assets and cash. Over the past year, the company has received over ¥300 billion from sale of securities along with inflow from its technology and mobile divisions. Currently, it is reviewing sale of which listed securities would add to its buyback fund, as stated by a SoftBank spokeswoman.
The company has revealed that it currently has about ¥11.6 trillion in debt and about ¥1.2 trillion in cash. Its decision to spend ¥500 billion on the buyback shows "they are trying to take a bold step with this decision and that they are confident and know what they are trying to do next," according to The New York Times.
Last week, SoftBank had posted a net profit of ¥2.3 billion which was reflective of an 88% drop compared to the previous year. But, with the announcement, its shares soared 16%, the highest the company has seen in the last seven years. The Japanese entity also reported a 7.3% increase in operating profit for last three months ended in 2015 versus the previous year.
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