SoftBank's Strategic Share Buyback: Navigating Growth in a Digital Economy

SoftBank Corporation’s recent tender offer for its subsidiary LY Corporation, alongside a simultaneous share tender by A Holdings (AHD), marks a pivotal move in its strategy to consolidate control over high-growth digital assets. This article delves into the mechanics of the tender, its implications for shareholders, and the broader implications for SoftBank’s ecosystem.

The Tender Offer Unpacked

LY Corporation, a SoftBank subsidiary, announced a tender offer to repurchase 281.4 million shares at ¥533 per share, totaling ¥150 billion. The offer is backed by AHD, SoftBank’s wholly owned subsidiary, which holds 62.45% of LY’s shares. AHD has committed to tendering 175.8 million shares, or 2.46% of its stake, to reduce its ownership to approximately 59.99% post-transaction. The shares not repurchased will be canceled by July 1, 2025, shrinking LY’s outstanding share count and boosting earnings per share (EPS).

Why This Move Matters

1. Strategic Control:
   AHD’s participation underscores SoftBank’s intent to maintain operational influence over LY, a critical player in digital payments (via PayPay), e-commerce (ZOZO, ASKUL), and media (LINE). These segments are key to SoftBank’s vision of a “digital life platform,” with PayPay’s GMV surging 23.4% YoY to ¥15.4 trillion in FY2024.

2. Financial Engineering:
   The tender aims to lift LY’s adjusted EPS to ¥25.9–26.9 by FY2026, up from prior targets, by reducing the share base. With dividends set at ¥7.00 per share (a 26% increase from 2023), shareholders benefit from both higher earnings and steady returns.

3. Capital Allocation Discipline:
   The offer consumes ¥150 billion from LY’s ¥580 billion capital buffer, leaving ¥203.9 billion for future M&A or buybacks. This reflects a disciplined approach to deploying cash flow, with LY’s FY2024 adjusted EBITDA up 13.5% YoY to ¥470.8 billion.

Risks and Considerations

• Market Volatility: The tender’s success hinges on shareholder participation. If demand exceeds supply, prorated allocations could dilute the EPS impact.
• Geopolitical Risks: LY notes cautious monitoring of U.S. tariff measures, though its direct exposure is limited.
• Ownership Concentration: While AHD’s reduced stake eases control concerns, SoftBank’s 62.45% pre-tender ownership highlights reliance on a single entity.

The Broader Implications

SoftBank’s move reflects a shift toward asset-light strategies, prioritizing high-margin digital services over capital-intensive ventures. LY’s fintech segment (PayPay/PayPay Bank) grew revenue by 17.7% YoY, with EBITDA jumping 347%, signaling its potential as a cash flow engine.

Conclusion: A Strategic Bet on Digital Dominance

SoftBank’s tender offer is less about immediate financial gains—deemed “immaterial” to its consolidated results—and more about reinforcing control over LY’s growth engines. With LY’s FY2026 revenue target of ¥2.1 trillion (up 9.5% YoY) and its 70% dividend payout ratio, the transaction positions shareholders to benefit from a company primed for sustained digital expansion.

Crucially, the ¥533 tender price sits at a 15% premium to LY’s 52-week low, signaling confidence in its undervaluation. Should the tender succeed, LY’s post-buyback share count could drop to 6.87 billion shares, enhancing EPS by ~4%—a compelling case for long-term investors in SoftBank’s digital future.

In a landscape where fintech and e-commerce dominate, this move cements SoftBank’s resolve to capitalize on LY’s strengths, offering a glimpse into its vision for the next wave of tech-driven growth.