Softbank Jumps on $7.6 Billion Bonus in T-Mobile Shares
Thanks to T-Mobile's share price staying above $150, Softbank will receive $7.6 billion in T-Mobile shares under terms of its 2020 merger with rival Sprint.
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It's a very Merry Christmas for Softbank Group SFTBY and its founder, Masayoshi Son, as the company receives a windfall that at least the market didn't anticipate.
Softbank announced late Tuesday that it has asked mobile phone service provider T-Mobile UU TMUS to issue it US$7.6 billion in shares, essentially for free, after certain conditions of its merger with the Softbank subsidiary Sprint were met. Softbank will be receiving nearly 48.8 million shares in T-Mobile.
Softbank shares jumped 4.2% today in Tokyo trading, a nice bump in what has been a disappointing year for the stock relative to the market. It's up 12.7% even after Wednesday's advance, while the broader Tokyo market, in the form of the Topix index, has risen 26.6%. The blue-chip Nikkei 225 has advanced 31%.
Softbank bought Sprint in 2013 for the equivalent of about US$22 billion. It then merged Sprint into T-Mobile in 2020 in an all-stock transaction valued at around US$37 billion. That left Softbank with 24% of the combined company.
Under the terms of the merger, Softbank is entitled to the 48.8 million shares because the trailing 45-day volume-weighted price average of T-Mobile shares has stayed above US$150 during the period from the second anniversary of the merger's closing to the end of 2025. Softbank said the conditions were met on Dec. 22, with the necessary threshold reduced slightly to US$149.35 after T-Mobile declared a dividend of 65 cents per share.
T-Mobile shares stand at US$156.83 as of Tuesday's close. They've closed above US$150 since Nov. 30, rising to an all-time closing high of US$160 on Dec. 12.
Softbank had booked a gain of US$1.8 billion on the Sprint merger with T-Mobile when it closed in April 2020. It then booked another US$5.7 billion fair-value gain on its T-Mobile shares as of Sept. 30 this year, and now adds another US$1.9 billion to the total once the shares are transferred, which is due to occur within 10 days.
Softbank has seen many of its recent investments fall flat after initially striking a rich seam with an early position in Alibaba Group Holding (HK:9988 and BABA ). It calculates that its initial investment in Sprint has yielded a 25.5% internal rate of return. Given that it used debt to fund 81% of the initial purchase of Sprint shares, it is touting an 8.1 times return on the cash it invested in terms of capital.
The transaction will double Softbank's T-Mobile stake to 7.64% from 3.75% in a company that now has a market capitalization of US$181.4 billion.
The realization of the gain should give Softbank more equity on hand against which it can borrow. It also reflects some of the assets on its balance sheet, with the stock trading at a deep 45.5% discount to the value of its assets, according to Macquarie.
Softbank also has seen success with the listing of the British chip designer Arm Holdings ARM . That stock listed at US$51 in September, as I discussed at the time, when I said it would make sense to wait for its first set of earnings before buying into the new listing.
Arm reported better-than-expected earnings in early November, when its shares were a notch higher than the listing price. But it is now trading at US$73.41, netting a 42% gain since the day after those results, which would have gotten you the vast majority of the 43.9% advance on the initial public offering price.
Still, Softbank is not seeing the benefit in its own share price. The group's shares fell 15.9% between the Arm listing and early December. Only now is the stock beginning to find its feet again, and it should have further to rally given the double jolt in the arm from Arm and the T-Mobile gain.
Softbank founder Son said he is scouting for new investment frontiers, with a particular interest in artificial intelligence and autonomous driving. Such investments may help erase some of his worst memories over Softbank's heavy investment in the likes of WeWork, which was once the most valuable U.S. startup only to collapse into bankruptcy last month.
At the time of publication, McMillan had no positions in the stocks mentioned.
