Masayoshi Son, the defiant founder of SoftBank, admitted he had turned a "blind eye" to governance lapses at WeWork but vowed to revive the crisis-hit group after disclosing a US$4.6 billion ($7.23b) writedown on the Japanese company's investment in it.
The dismal results on Wednesday came two weeks after SoftBank agreed a US$9.5b package to rescue the US office-sharing group following an aborted attempt at an initial public offering. The deal saw WeWork's valuation sink from US$47b in January to US$8b.
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Despite the setback, Mr Son defended SoftBank's strategy in his two-hour presentation, insisting the WeWork deal was not "a bailout", its US$97b Vision Fund was still doing better than other venture capitalists, and that plans to deploy another US$100b fund were on track.
"I made a bad investment decision and I am deeply remorseful," Mr Son said at a news conference in Tokyo. "But there is no change to my strategy or vision."
Mr Son said SoftBank would aim to get a return on its WeWork investment in four to five years with a turnround plan that involves a freeze on new leases and shutdown of its lossmaking noncore businesses.
"The logic is simple. Time will resolve . . . and we will see a sharp V-shaped recovery," Mr Son said.
For the July to September quarter, SoftBank reported a net loss of ¥700b (US$6.4b) from a year earlier profit of ¥526b. The performance of its Vision Fund, which had driven SoftBank's earnings since its launch in 2017, was pressured by unrealised losses totalling ¥538bn from its investments including WeWork and ride-hailing group Uber.
Mr Son admitted there may be "plenty" of other investments backed by the Vision Fund that were overpriced such as Wag, the dog-walking company. But the SoftBank boss insisted there will be more upside than downside, saying 37 of 88 investments by the Vision Fund increased in value while 22 others declined.
The value of SoftBank's equity holdings increased 7.1 per cent from the past quarter. That was mainly driven by gains in its stake in Chinese ecommerce group Alibaba. Net debt increased from ¥4.9tn to ¥5.5tn.
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The WeWork crisis has been a rare blunder for the billionaire founder of SoftBank, an aggressive dealmaker who claims to be guided by a gut feeling in picking winners in the technology industry.
Under pressure from investors, Mr Son revealed that the company will adopt new measures to tighten governance at companies it backs, as earlier reported by the Financial Times.
The Japanese group poured more than $10bn into WeWork as Mr Son backed Adam Neumann, the co-founder of the property group. But governance concerns and questions about its business model killed WeWork's hopes for a listing after it failed to fetch even a $15b valuation from investors.
Mr Neumann was ultimately forced out of the company, but not before he secured a controversial $1.7b exit package even as 4,000 WeWork employees are to be fired.
"I turned a blind eye to many of his negative aspects. I have major regrets particularly on [WeWork's] governance problem," Mr Son conceded on Wednesday.
Mr Son stressed that its new $108b Vision Fund will "launch on schedule", but Saudi Arabia and its neighbour Abu Dhabi, the two major investors in the current $97b fund, have been slow to commit following the WeWork turmoil.
Some analysts questioned Mr Son's bullish outlook on WeWork's recovery plan. "Cost reductions are necessary of course, but a corresponding pullback in growth makes WeWork look a lot like IWG, which is worth $4.5b, and that is even lower than the implied $8bn SoftBank just paid," said Kirk Boodry, a tech analyst at Redex Holdings who publishes on research platform Smartkarma.
Written by: Kana Inagaki
© Financial Times