The Enigma of Masa Son: Visionary Genius or Lucky Gambler?
Two New Books and my Interview with a Former SoftBank Insider
I had breakfast a few weeks ago with Oliver Shah, Associate Editor of the Sunday Times, the Sunday newspaper in the UK. He told me about former FT editor Lionel Barber’s new book, a biography of Masa Son. I was excited, as I have huge respect for Barber and was intrigued to learn more about Son and his company, Softbank.
Oliver connected me with him, and I arranged a date to record the podcast. The book was fantastic and I was thrilled to have the opportunity to interview him. The Sunday before our appointment, I was surprised to read a preview of a second book about Son in the Sunday Times. Written by Alok Sama, it was a fascinating first hand account of a meeting between Sir Simon Robey and Son, as he planned his takeover of ARM Holdings.
Sama is the former CFO of Softbank International and previously was a banker. He helped direct the execution of the ARM transaction for Softbank. He has since gone back to school to do a writing degree at NYU and his first book, The Money Trap: Lost Illusions Inside the Tech Bubble, is both a personal memoir and a review of his experience working for Son.
Masayoshi Son built SoftBank from scratch into one of the world’s 200 largest quoted companies, through a bold and often apparently reckless slew of deals; it has been a rollercoaster ride and Son has made it through some hairy debt-laden periods, with forward vision and a large dash of luck.
It’s hard to know how much luck and how much vision has driven Softbank’s growth – much of it accrues to an early investment in Alibaba. Son was also an early backer of Yahoo and his acquisition of ARM Holdings has probably made close to $100bn on paper today, as ARM’s valuation has exploded. The stock had a quiet IPO, floating at $51 and rising by 10%, but has nearly trebled since, benefiting from AI stockmarket enthusiasm.
ARM Holdings Stock Price
Source: Alpha-Sense
Son’s failures have tended to be smaller, but more frequent, than ARM or Alibaba. The investment in WeWork was his biggest and most obvious failure; I thought at the time that its $47bn valuation was a joke, warranting its inclusion in my Forensic Analysis Course - this was a property company, not a tech company. Son dropped $10bn on that deal. That’s a big loss, even for his $100bn Vision Fund. Most humorously, he blew $300m or so on Wag, a dog-walking app - apparently, the pitch deck included a picture of his beloved poodle.
Most puzzling of his failures is Greensill, the finance fraud which had no tech of its own and was purely a reverse factoring business. Softbank not only invested directly in Greensill but apparently also in the related Credit Suisse fund and even lent money to the company, while Greensill funded a number of Softbank investees. (Marc Rubinstein and I flagged Greensill some 18 months before it imploded).
Softbank’s Ties with Greensill
Source: FT from Credit Suisse Data at March 2020
It has attracted less attention than WeWork to date. But multiple investigations and civil cases are ongoing in different jurisdictions around Lex Greensill and Greensill Capital. A court case might shed more light on Softbank’s and potentially Son’s involvement.
Son is more than a deal junkie. His debt-fuelled acquisition of Vodafone Japan ended up a highly successful transaction, with credit going to Son for skilful operational management. Again, this has attracted less attention to date, but is well portrayed in Barber’s biography
The Books
These books illuminate Son as a businessman and as a man, but neither quite explains if he is a lucky gambler or visionary genius.
Lionel Barber’s biography is comprehensive and illuminating and he did an enormous amount of research over 3 years – he hired a Japanese researcher and interviewed 150 people, many in Silicon Valley including Michael Moritz and Bill Gurley. He even interviewed Bill Gates and Warren Buffett.
Barber first visited Japan in 1996, but took a closer interest when Nikkei acquired the Financial Times when he was editor. He then made 14 visits to the parent company and has become a great admirer of the country and its civilization.
He decided to write about Masa Son as he was once the richest man in the world (for 3 days), has created a massive empire in Softbank, but remains a mystery. When he told Softbank that he was writing the book, they were unenthusiastic, as Son is a very private person who wraps himself in mystique. In my interview, Barber was therefore reluctant to talk about Son’s home life.
Barber tells the story of travelling to California to meet Forrest Moser, Son’s first business partner. He planned to go to Berkeley to find Son’s academic records, but wasn’t allowed. And he didn't hear anything from Forrest Moser whom he had emailed. Barber went back to his hotel and thought it was going to be a wasted trip.
But on LinkedIN, he found Moser’s son who gave him his father’s phone number. When he called, Moser said he could come round but could he give him two words to describe Masayoshi Son. Barber responded, “would-be visionary, reckless gambler”. Moser replied “how about just crook?” Because he felt that Masa had gone behind his back and sold the rights to distribute the speech synthesizer to Japanese companies without his permission. He was selling National Semiconductor chips that didn't exist at prices he'd invented.
When Barber put this to Masa Son, he was a bit embarrassed, and replied that it was just a misunderstanding. Barber thinks that's quite a revealing story.
Barber also interviewed Nikesh Arora, the ex-Google executive, the number four there, the chief revenue officer. Arora told him about this scene in a Japanese restaurant where they're negotiating his pay package. And it's all being done on a napkin. And zeros are being added with brackets. It ended up 320 million dollars guaranteed over four years - 80 million dollars a year.
Sama’s story is a more personal account of his relationship with Son and Softbank but offers the odd glimpse behind the scenes. Sama does not feature much in Barber’s book, perhaps because he was only employed as CFO at Softbank International for four and a half years.
Sama was a close friend of Nikesh Arora who brought him into Softbank. He had been working with a Dubai firm investing in India, less successfully than he had hoped, after a spell as an investment banker with Morgan Stanley. We can only speculate on what someone “earning” $80m pa would pay one of his friends to join in a senior position, but Sama makes clear that he enjoyed his wealth and the related trappings – flying in a G5 private jet, driving with his wife to the French Laundry in his Porsche Targa, and debating whether to wear a suit or a $1200 hoodie to a conference.
I must be a value investor because I cannot imagine paying that for a hoodie (although Sama wasn’t wearing it for our interview). The most interesting parts of his book are the firsthand accounts of the meetings around the ARM acquisition. Flying to Turkey for a meeting between Masa Son and the ARM Chairman and CEO where Masa put his offer to them; it was held in a Turkish restaurant (Softbank hired the whole place for privacy), as the ARM Chairman was on a sailing holiday there.
Similarly, the account of Masa’s meeting with Robey, Sir Suspenders as he called him, was amusing and gave an insight into how these deals are done – this one being done in the aftermath of the Brexit vote, a period of introspection in the UK which proved timely for Softbank as it encountered less opposition than it might otherwise.
In our conversation, Sama made much of Son’s brilliance at identifying the opportunity with ARM, but I am less sure, and you can see why from the chart above and the valuation today:
ARM Holdings Valuation ($144)
Source: Alpha-Sense
Perhaps as Sama suggested in our conversation, it’s more than a designer of low energy consumption chips for mobile phones and it really has become an AI leader. It’s certainly well-positioned to become an AI chip leader for edge computing use. Valued at $160bn, on 362x historic P/E, it may have to grow into its valuation.
Sama and I also had a disagreement on the Softbank valuation. In our discussion, he suggested that Softbank’s loan to value was under 10% which I said was impossible as it had $80bn or more in debt. I didn’t pursue it in the podcast as I didn’t want to embarrass a guest. I have reviewed the calculation below for premium subscribers.
You can listen to my podcast with Lionel Barber here, or wherever you get your podcasts.
Premium subscribers can listen to or watch the podcast with Alok Sama on Substack - 2 emails flying your way shortly - and can read on for why I think Softbank’s loan to value calculation is designed to flatter.
Gambling Man: The Wild Ride of Japan’s Masayoshi Son by Lionel Barber
The Money Trap: Lost Illusions Inside the Tech Bubble by Alok Sama
And a word from AlphaSense, my podcast sponsor……….
They also sponsor a podcast by Patrick O'Shaughnessy who hosts Invest like the Best - I wish I had his interviewing skills and his guest list. He is hosting a live-streaming panel discussion on AI’s Impact on Investing.
This expert panel will explore how AI is revolutionizing market research, enabling faster and more precise insights. You’ll also learn how firms are using AI to navigate complex data and uncover hidden opportunities. Plus, discover how AlphaSense’s AI solutions are helping investors find off-the-radar analyst insights that can drive smarter decisions.
I shall be listening in - I am keen to learn how Patrick is using AI.
