SoftBank Shares Tumble as Investors Question ARM Deal
July 19 2016 - 1:30AM
Dow Jones News
TOKYO—SoftBank Group Corp.'s shares plunged Tuesday as investors
questioned the $32 billion price tag on the company's purchase of
U.K.-based chip designer ARM Holdings PLC.
Shares in SoftBank, a Japanese internet and telecommunications
conglomerate, were down 10.7% at 5,365 yen ($50.7) as of the midday
close in Tokyo. The price briefly touched ¥ 5,329—the lowest level
since early April.
Japanese markets were closed for a national holiday Monday, so
trading Tuesday showed the first market reaction in Tokyo to news
of SoftBank's acquisition of ARM, which was announced Monday.
"My first impression was that the purchase made investors
worried about SoftBank being able to receive synergies from the
purchase of ARM and collect all the cash it spent," said Masayuki
Kubota, chief strategist at Rakuten Securities.
In another sign of market skepticism, spreads on credit-default
swaps, a measure of the cost of protection against the risk of
defaulting on debt, also rose. CDS spreads had risen about 30 basis
points Tuesday morning from Friday's close, according to Toshihiro
Uomoto, chief credit strategist at Nomura Securities. Wider spreads
mean debtholders are more worried about an issuer's credit
risk.
SoftBank Chief Executive Masayoshi Son said Monday that the ARM
deal marked a "paradigm shift" at SoftBank and a bet on demand for
internet connectivity across everyday devices such as automobiles
and refrigerators.
Analysts, though, say the business lies far outside the realm of
SoftBank's existing operations, and the price was difficult to
justify without further explanation from Mr. Son about what he
hopes to gain from buying ARM.
"SoftBank is going to pay 43% premium for ARM, which is seen by
the market as overpaying and is weighing on SoftBank share prices.
SoftBank must show investors that the purchase is worth more than
the premium," Nomura's Mr. Uomoto said.
Mr. Kubota of Rakuten Securities questioned why Mr. Son decided
to invest in a hardware company.
"The most important thing in IoT [Internet of Things] is not
hardware, but software, such as deep learning, the brains of smart
devices," he said.
Other investors expressed concern that the ARM acquisition may
delay SoftBank's efforts to turn around unprofitable U.S. wireless
carrier Sprint Corp., which it bought in 2013.
"A push into the Internet of Things is positive in the long run.
Mr. Son is right on that," said Mitsushige Akino, chief fund
manager at Ichiyoshi Asset Management. "But we'd rather have seen
that after they figured out how to turn around Sprint."
Mr. Son said Monday that he decided to make the ARM purchase
partly because he is confident about turning around Sprint.
SoftBank has been cutting expenses to revive the No. 4 U.S. mobile
carrier.
Sprint shares fell 5% in New York on Monday.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com and Kosaku
Narioka at kosaku.narioka@wsj.com
(END) Dow Jones Newswires
July 19, 2016 01:15 ET (05:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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