Shares of SoftBank Group (OTC:SFTBY), a Japanese telecommunications company, soared on Thursday. The stock climbed about 10%.
The stock's rise follows news that activist investor Paul Singer has been accumulating massive amounts of SoftBank stock via his investment firm Elliott Management. Elliott has accumulated $2.5 billion worth of SoftBank stock and has met with SoftBank founder Masayoshi Son to discuss ways to boost shareholder value, according to a report from The Wall Street Journal on Thursday.
"Elliott has engaged privately with SoftBank's leadership and is working constructively on solutions to help SoftBank materially and sustainably reduce its discount to intrinsic value," an Elliott spokeswoman told The Journal. Further, in a statement to media, SoftBank acknowledged that it does believe its shares "are deeply undervalued by public investors."
Time to repurchase shares?
While SoftBank is a telecom company, it also has significant stakes in fast-growing companies like Alibaba and Slack Technologies. Elliot believes SoftBank is trading at a discount to the intrinsic value of the combined value of its telecom business and its investments, leaving shares undervalued. This presents SoftBank with a unique opportunity in which it can create shareholder value by repurchasing shares. Elliott is reportedly pushing for the company to repurchase $10 billion to $20 billion worth of its stock.
Based on the stock's response to Thursday's news, investors apparently agree that SoftBank is undervalued and that a $10 billion to $20 billion repurchase program would create significant shareholder value.
Shares of SoftBank have lagged the market over the last three years, rising only 22%. This compares to a 46% gain for the S&P 500 over this same time frame.