Tuesday, May 11, 2021

SoftBank Incentive Plan Leaves Top Executives With Potential $ 1 Billion Gains

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Four senior SoftBank executives, including Rajeev Misra and Marcelo Claure, are sitting on a potential collective gain of $ 1.2 billion after receiving unusual loans from the company last year to buy its shares.

SoftBank approved incentive packages in February last year that provided more than $ 600 million in loans to the four men, allowing them to buy stocks that have recovered sharply.

A one-year lock-up restricting the sale of some of those stocks is expected to expire next month, giving lieutenants of SoftBank founder Masayoshi Son the chance to start cashing in the earnings.

Some investors have asked the company to clarify whether a board reshuffle that saw three of the four men quit their directorships in November was potentially related to avoiding future loan disclosures, one person said. having direct knowledge of the matter.

According to a Financial Times analysis, depending on when they buy their individual stocks, executives can be sitting on paper earnings from around $ 300 million to just over $ 1.2 billion.

Mr. Misra, who heads SoftBank’s Vision Fund, and Mr. Claure, who is SoftBank’s COO, are individually sitting on earnings of up to $ 500 million each based on these calculations.

The duo already rank among the highest paid characters in Japan earning $ 15 million and $ 19.6 million last year, in a country where huge executive salaries are frowned upon.

Loans, little studied, are detailed in SoftBank Annual Report for the year through March 2020, in a section that requires information on transactions between the company and its directors.

The report shows that at the end of March last year, MM. Misra and Claure had each received about $ 250 million in business loans to buy SoftBank stock. One such program, implemented in 2018, also awarded $ 50 million each to Katsunori Sago, chief strategy officer of SoftBank, and Ken Miyauchi, president of SoftBank.

Mr Misra, Mr Claure and Mr Sago all resigned from SoftBank’s board in November, in what was billed as a corporate governance shake-up at the company, after pressure from the hedge fund activist Elliott Management.

The departure of three men from SoftBank’s board of directors may mean that SoftBank will no longer be required to fully disclose their compensation and borrowings from the company to purchase shares. One person said SoftBank is discussing whether to keep the same levels of disclosure to reassure investors.

“This type of incentive program is extremely rare for Japanese companies,” said Katsuyuki Kubo, a corporate governance expert at Waseda University. “Although there is no legal obligation, ideally from a governance perspective, incentives for senior executives who actively participate in the management of the company should be disclosed because the information is important to them. investors. “

Mr Son essentially supported his company’s potential losses on loans to his lieutenants, with a footnote in the report explaining that the founder of SoftBank had guaranteed any “shortfall” between the value of the collateral and the loan. .

SoftBank’s chief executive, 63, has provided similar support in the past. In 2019, Mr. Son personally guaranteed $ 2 billion in loans taken out by the then 25-year-old founder of Oyo, an Indian hotel company backed by the Vision Fund.

An asset manager, whose fund has a large stake in SoftBank, said investors were now probably used to the idea that Mr. Son likes senior executives to be both engaged and motivated by large holdings in SoftBank shares.

“But what we’re seeing now seems to take it to the extreme. This adds to the image of a business that is basically a guy who calls every shot, and your choice to take the risks that come with it, ”the investor said.

Internal loans and the broader issue of executive compensation have also caused tension among SoftBank employees, according to two people with knowledge of the matter, leading some to demand a higher salary or a rise in successful transactions.

SoftBank declined to comment on the incentive program.

The FT previously reported that several employees expressed shock over the disclosure of Mr. Misra’s compensation Last year. The FT also reported that Mr. Misra considered moving from London where he has headed SoftBank’s Vision Fund in Abu Dhabi for the past few months.

At the time, the person close to Mr Misra said any move would have been part of a larger plan for the Japanese company to lower its tax rate by relocating the headquarters of its investment arm. The person also played down the suggestion that Mr Misra would personally move to the UAE, which does not tax capital gains, from his London base.

SoftBank shares have traded near their highest level in more than two decades over the past few weeks as a global technology rally has increased the value of its holdings.

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This turnaround marks a sharp recovery after its disastrous investment in WeWork and a collapse in SoftBank’s share price in March 2020, which sparked a series of large share buybacks and the sale of $ 90 billion in assets to repay his debt.

If executives used the loans to acquire stocks after the market’s strong sell-off last year, they may be sitting on gains of around 206 percent before any interest owed to the company. If the shares were acquired earlier, for example at their maximum price during the period from February to March of last year, they would instead increase by just over 46%.

Mr. Son is SoftBank’s largest shareholder, owning 25 percent directly and indirectly, and the largest beneficiary of its share price rebound.

Additional reporting by Leo Lewis

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