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Softbank’s Hellish Nightmare Unravels with WeWork, Wirecard and Jack Ma

Last Updated September 23, 2020 2:01 PM
Joseph Young
Last Updated September 23, 2020 2:01 PM
  • SoftBank’s Masayoshi Son left the board of Alibaba on June 25.
  • Son’s departure follows poor dealings with WeWork and Wirecard.
  • Industry analysts say the absence of Son and Jack Ma at Alibaba and SoftBank’s boards is a big loss.

SoftBank was already having a bad year, due to its dealing with WeWork and WireCard. It is now about to get worse.

Masayoshi Son steps down from Alibaba’s board  on June 25, on the same day Jack Ma leaves SoftBank’s board. 

Son emphasized his departure from the board of Alibaba does not negatively affect the relationship between the two.

He said:

It’s not like we had a fight. This was perfectly amicable.

But, analysts believe the absence of Son’s presence on the Chinese e-commerce giant’s board is a “big loss.”

softbank stock

When it pours…

On May 18, SoftBank officially gave WeWork, the struggling coworking space provider, a valuation of $2.9 billion . Just 12 months ago, WeWork was worth $47 billion on paper.

In a press conference in November 2019, Japan’s SoftBank Group CEO Masayoshi Son revealed an operating loss of $6.4 billion in the second quarter, the worst in its history, taking a hit from investments in start-ups including WeWork and Uber. | Source: Kazuhiro NOGI / AFP

Son admitted the investment was wrong. He reportedly said during an earnings call:

We made a failure on investing in WeWork, and I’ve been admitting that several times I was foolish.

Then, on June 23, The Financial Times reported that the plunge of Wirecard’s stock price caused SoftBank executives to lose hundreds of millions of dollars in profit. 

According to FT, SoftBank indirectly invested Wirecard through a convertible bond. The deal, worth $1 billion, allowed Wirecard to pay the debt through its stock and not cash.

As the stock price of Wirecard crashed by more than 80%, SoftBank executives and other organizations involved in the deal reportedly recorded significant losses.

Son’s withdrawal from Alibaba’s board follows two controversial investments at SoftBank.

softbank wirecard
Source: Arash Massoudi 

Michiaki Tanaka, a business professor at Tokyo-based Rikkyo University, said Son and Jack Ma’s respective absence on Alibaba and SoftBank’s boards is another significant loss. 

Tanaka said:

The joint board membership was a big positive for both companies because it gave them a way to benchmark their respective business models. Not having that board-level contact is a big loss.

In the near-term, SoftBank will have to see a resurgence to make up for its two poor deals.

For now, the investment company seems to be eyeing two main areas of growth: stock repurchase and investments in small companies.

Alibaba co-founder and China’s wealthiest man, Jack Ma, has quit SoftBank’s board. | Source: Shutterstock.com

What’s Next For SoftBank?

Minor investments in small startups will likely aid the recovery of SoftBank in a post-pandemic world.

SoftBank plans to make investments of over $150,000 to startups in its accelerator program in the near-term.

SoftBank previously said in March that it aims to sell $41 billion in assets to buy back its shares  and expand cash reserves. The additional cash at hand would allow the company to invest in more early-stage startups.

The company freed $21 billion in cash after it sold 65% of its ownership in T-Mobile, amounting to 198 million shares.

Over the next six months, SoftBank will likely focus on protecting its capital and leading the expansion of its own acceleration program.