SoftBank ups stake in Yahoo Japan

• Transaction in three-way deal boosts ownership without putting pressure on strained balance sheet ahead of IPO of telecoms unit

SoftBank Group is increasing its stake in Yahoo Japan through a $2bn three-way deal with US firm Altaba to deepen ties with the internet heavyweight ahead of an initial public offering of its telecoms unit.

The transaction, with just $9m net investment by SoftBank, allows it to boost ownership of Yahoo Japan without pressuring its already strained balance sheet. It also leaves SoftBank’s domestic telecoms unit with a 12% stake in Yahoo Japan, highlighting for investors the two companies’ ties ahead of its planned listing.

In the case of Altaba, formerly called Yahoo, which also owns about 15% of Chinese e-commerce giant Alibaba Group, the deal helps monetise some of its investment in the joint venture it set up with SoftBank in 1996.

And for Yahoo Japan, the deal could strengthen ties with its biggest shareholder, SoftBank, and help to assuage concerns of investors who have seen its shares tumble in 2018. Yahoo Japan’s shares ended 11.4% higher in Tokyo on Tuesday.

SoftBank announced on Tuesday it would buy ¥221bn ($2bn) of Yahoo Japan shares from Altaba. Yahoo Japan will then buy back ¥220bn of stock from SoftBank.

As a result of the transaction, SoftBank’s stake in Yahoo Japan will rise to 48.17% from 42.95%.

SoftBank said that the deal would strengthen co-operation between the company, one of Japan’s big-three telecoms firms, and Yahoo Japan, an internet heavyweight in areas such as news and shopping.

The synergies between SoftBank and Yahoo Japan are “consistent with SoftBank Group’s broader strategic synergy group initiative”, Masayoshi Son, CE of SoftBank, said.

SoftBank and its Vision Fund, the world’s largest private equity fund standing at more than $93bn as of May 2017, have been taking minority stakes in technology companies around the world that Son believes will dominate their respective fields. SoftBank is preparing to list its domestic telecoms unit in what could be the largest Japanese IPO in nearly two decades.

Yahoo Japan could use SoftBank’s telecom services to boost demand for online shopping and mobile payments among Japan’s shoppers, who are becoming increasingly net savvy.

SoftBank, through Yahoo Japan and others, is offering its mobile users an increasingly wide range of top-up services in addition to a basic phone subscription. Yahoo Japan is one of Japan’s most successful internet companies, with its services from earthquake alerts to online auctions and weather forecasts.

But its investment plans to fend off competition from rivals such as Rakuten and new upstarts such as Mercari have weighed on its shares, which are down more than 22% in 2018.

“It’s clear that using excess funds for share buy-backs is the only way Yahoo Japan has to hold up its share price,” said Yasuo Sakuma, chief investment officer at Libra Investments. The firm does not hold positions in Yahoo Japan or SoftBank.

Altaba has been selling down its Yahoo Japan stake.

Two Altaba appointments to the Yahoo Japan board will step down as a result of the transaction announced on Tuesday.

SoftBank shares ended up 2.1% on Tuesday.

AS A RESULT OF THE TRANSACTION, SOFTBANK’S STAKE IN YAHOO JAPAN WILL RISE TO 48.17%