US hedge fund Tiger Global has built a stake worth over $1 billion in SoftBank Group Corp as it considers the Japanese firm to be undervalued, a source with direct knowledge of the matter said, driving SoftBank shares up as much as 6.8 percent.
Tiger, which manages around $22 billion in assets, told investors in a letter that SoftBank’s stock price had not increased over the last five years even though its holding in Chinese e-commerce giant Alibaba had added more than $90 billion in value, the source said on Wednesday.
The Japanese tech and telecoms conglomerate, run by billionaire Masayoshi Son, has become deeply leveraged in its pursuit of winning investments. Besides Alibaba, it has stakes in US telecoms firm Sprint Corp and Yahoo Japan Corp
Son, at the company’s annual general meeting for shareholders last month, said that a “conglomerate discount” was weighing on the company’s shares and the stock should be trading above 14,000 yen rather than where they were then, at around 8,000 yen, accounting for its investments.
“We continue to believe the market significantly undervalues our stock and we welcome the support from a sophisticated institutional investor like Tiger Global,” SoftBank said in an email on Thursday.
SoftBank’s shares rose to as high as 9,413 yen and were later trading at 9,376 yen, up 6.4 percent, on Thursday.
SoftBank’s shares, which have increased 54 percent over the past five years, value the company at around $87 billion and trade at roughly 10 times forward earnings. The company had about $123 billion of debt as of end-March and has a debt-to-equity ratio of 3.97, compared with an industry median of 0.10.
Shares of Alibaba, which has a market capitalization of $480 billion, trade at 27 times forward earnings. They have more than doubled since the Chinese e-commerce giant listed its shares in 2014.
Tiger Global also based its SoftBank investment decision on the Japanese firm’s purchase of US investment group Fortress and the launch of its near-$100 billion Vision Fund to find and grow promising technology leaders.
Son, a self-described “unicorn-hunter” set up the mammoth Vision Fund to invest in artificial intelligence and connected devices, with companies from office-sharing firm WeWork to dog walking app Wag receiving funds.
A similar second fund is on its way, Son said in May.
Tiger Global was not available for comment outside regular US business hours.
The news of Tiger’s stake, earlier reported by the Financial Times, comes after SoftBank announced on Tuesday it had raised its stake in Yahoo Japan by buying $2 billion worth of stock from US firm Altaba.