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How Softbank made its billions

They're largely virtual, but it's a big pile, nevertheless

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Softbank, founded and run by Masayoshi Son -- the would-be Bill Gates of Japan -- has reported a consolidated net profit of $302 million for its fiscal year ending March, up from $78 million last year, but posted consolidated pre-tax losses of $124 million this year compared with $184 million profits a year earlier. Unconsolidated sales were flat at $1.64 billion. The bleeders of profits were the loss and restructuring cost at Ziff-Davis, interest payments, and new Internet investments. The saving grace is Softbank's investments in Yahoo (28 per cent, worth $8.76 billion), Yahoo Japan (51 per cent, worth $2.08 billion), E*Trade (28 percent, worth $3.75 billion), ZD (72 per cent, worth $1.01 billion), Geocities (22 per cent, worth $750 million) and some more, worth a total of around $16 billion - an eight-fold increase on the original investment. This buffer is necessary, as Softbank has some significant payments to make to Nomura to redeem maturing corporate bonds. In February, Softbank warned of a forthcoming loss, and sold 3 million Yahoo shares to offset the anticipated losses in ZD, which were $125 million, compared with a profit of $194 million the previous year. As a result of Internet euphoria, Softbank's share price has doubled this year. It is interesting that Son decided to invest in Yahoo on the advice of ZD CEO Eric Hippeau, and not from any personal research: he admitted to Hippeau that he did not have time for this. Son even had a hard time convincing Yahoo to take his original $100 million (since increased to $338 million), since there was fear that the company would be transformed as a result. Softbank is in the process of converting itself into an Internet conglomerate ("zaibatsu") by October, with wholly-owned subsidiaries controlled through shareholdings, after it separates its software and networking divisions. It is expected that Internet business and holdings will outperform the PC sector business. It has been hard to finger just what value Softbank adds to its acquisitions, apart from significant cross-advertising. It is perhaps best to see the organisation as a venture capitalist that has made some rather fortunate investments, a view that is not accepted by Yoshitaka Kitao, the CFO. The next move will be five IPOs: three in the US and two in Japan, which may increase its esteem amongst shareholders. Son is seen as something of a business renegade, which is less surprising than might be expected, since he is of Korean descent and does not accept the traditional ways of Japan. With the Japanese government dictating fiscal policy to the major Japanese banks, Son was cold-shouldered when he bought Comdex without consulting the Industrial Bank of Japan. The bank demanded that Son did so in future, but he refused to agree, so the IBJ stopped the company's credit line. There then came a most delicate negotiation. Son asked Nomura Securities to do a bond issue, but Nomura wanted the nod from the Ministry of Finance, who refused unless the IBJ was involved. Tricky. But then there was a stroke of luck. Son had a call from a ministry official seeking an assurance that he would not sue for abuse of power. Aha, thought Son: they're worried, so he replied that he would indeed sue. By strange coincidence, the next day Nomura was told it could go ahead with the bond issue. The miffed IBJ immediately sold all its Softbank shares, and other investors followed suit when the story hit the headlines. Son was then blackballed by Japanese business leaders for daring to fight the IBJ, but his response was that the bank "goes against business morals". But as in all countries, money talks and Son is beginning to be seen as having started a new style that could provide a model for changing Japan's old-fashioned business practices. (All conversion are at 124 yen = $1.) ®

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