Advocating reform, activist investor Elliott Management takes a $2.5B stake in SoftBank

The activist investment firm Elliott Management has steadily amassed a $2.5 billion stake in the headline-grabbing, Japanese technology conglomerate SoftBank even as a series of missteps battered the company’s share price.

Famous for its investments in companies like Slack and Uber and infamous for betting billions on the co-working real estate marketplace and development company, WeWork, SoftBank presented an enticing target for Elliott’s brand of financial speculation, according to an initial report in The Wall Street Journal.

Last November, SoftBank Group reported a $6.5 billion loss thanks in part to its efforts to bail out its investment in WeWork — a company once valued in private markets at $47 billion.

Those losses sent the stock price tumbling, but despite its troubles, SoftBank still holds a vast stable of portfolio companies. It’s those assets that Elliott Management thinks are appealing enough to carve out some of its $34 billion in assets under management for a minority stake.

“Elliott’s substantial investment in SoftBank Group reflects its strong conviction that the market significantly undervalues SoftBank’s portfolio of assets,” a spokesperson for the firm wrote in an email. “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.”

SoftBank made waves in the technology investment world with its massive $100 billion Vision fund, which was designed to take stakes in emerging technology companies that required lots of cash, but could potentially transform various industries.

The audacious investment strategy was financed by working with sovereign wealth funds like the Saudi Arabian Public Investment Fund (whose principals are linked to a leadership known for ordering the assassination of journalists) and companies like Apple and Microsoft.

Through its limited partners and with its own cash, SoftBank was able to take large equity stakes in companies across a range of different industries. However, it now appears that those large equity stakes will be difficult to maintain or justify.

Over the last year, several of SoftBank’s portfolio companies have run into trouble, and it’s an open question whether any changes Elliott might be able to effect at the top of the organization would have an impact on the performance of the underlying portfolio.

Indeed, given SoftBank founder Masayoshi Son’s 22% ownership stake in the business, any corporate activism that Elliott may initiate or advocate for could have limited results.

There are good businesses in the SoftBank portfolio, and public investors have rushed in to buy the company’s stock on the back of the disclosure of Elliott Management’s investment.

However, the flood of capital that came into the venture market in 2018 seems to have crested, which could leave SoftBank and its new investors soaked.