SoftBank Group - Company History

A founding that filled the gap in software distribution, and an entry into publishing

In September 1981 the 24-year-old Son Masayoshi (孫正義)[1] established Japan SoftBank at Yonbancho, Chiyoda-ku, Tokyo[2], and began wholesaling packaged software for personal computers. The company's founding ground is the city of Fukuoka[3]. Personal computers were spreading and the range of software was widening, yet almost no business existed to carry goods from makers to retail shops, so a user had to trawl several microcomputer shops before reaching the title they wanted[4]. Son designed the business as an intermediate distributor that would deliver software the way a bookshop delivers a book[5]. He narrowed his options to a handful of industries on the criteria of low capital and high growth, hired staff, and spent a year and a half studying the market and the technology before committing to the founding[6]. In May 1982 the company launched the monthly magazines Oh! PC and Oh! MZ, entering publishing[7].

The founding capital was the $453,412 (¥100m) Son had earned from the patent on an automatic translation device he developed while studying in the United States[8]. Software could not serve as collateral, so no bank would lend to a distribution business at its founding, and the loan was executed only against personal guarantees from Sharp's Sasaki Tadashi (佐々木正) and others[9]. To make up for his lack of managerial experience, in 1983 Son brought in Omori Yasuhiko (大森康彦), formerly of Japan Guard Security, as president, and stepped back to become chairman[10]. Revenue grew from $9.2M (¥2bn) in the second year to $18.9M (¥5bn) in the third and $31.6M (¥8bn) in the fourth[11], reaching $48.2M (¥12bn) in the fifth, the year ended December 1985[12]. Oh! PC, launched the year after incorporation, also succeeded, and publishing grew into a pillar of the business alongside wholesaling[13]. Son returned to the presidency in 1986[14].

Flotation, and buying an information network

In July 1990 the company changed its name to SoftBank[15], and in July 1994 it registered its shares with the Japan Securities Dealers Association and went public[16]. Using the fundraising power that flotation gave it as a lever, from December that year it moved on the American trade-show operator Comdex and the Silicon Valley IT publisher Ziff-Davis[17]. The acquisitions were funded with bonds — beginning with a first unsecured straight bond of $106.3M (¥10bn) in February 1995[18], it issued twelve tranches totalling $2.0B (¥220bn) by November 1996[19]. Piling large acquisitions on borrowings one after another swelled interest-bearing debt to a scale greater than its revenue[20]. In January 1998 it listed on the First Section of the Tokyo Stock Exchange[21].

On 11 January 1996 SoftBank established Yahoo Japan Corporation as a joint venture with Yahoo of the United States, capitalised at $1.8M (¥200m)[22]. SoftBank held 60 per cent, or $1.1M (¥120m), and Yahoo Corporation 40 per cent, or $735,497 (¥80m)[23]; Son Masayoshi himself took the post of representative director and president[24]. The business was defined as providing a Japanese-language information search service within Japan and operating a mirror site[25] — an irregular joint venture in which the brand and the technology were borrowed from the American Yahoo while SoftBank held the capital and the management. In April the same year it put a further $91.9M (¥10bn) or so into Yahoo itself in the United States, becoming a larger shareholder than the founders. The American Yahoo was at that point no more than a venture with five or six employees and monthly revenue in the tens of millions of yen.

The market voiced concern that the run of acquisitions was draining the company's financial strength, and in August 1996 the question was put directly — could it stand the strain of one purchase after another?[26] Son Masayoshi replied that there was nothing to worry about, arguing that the acquisitions were not expensive purchases and that he was not chasing easy gains[27]. In the autumn of 1997 the deteriorating results of the acquired companies came to the surface, and clouds gathered over Son's expansionary line[28]. Criticism also gathered around an acquisition scheme that used a company Son owned personally; Son said that the responsibility for the shadowed parts is mine as well, while stating plainly that the acquisitions would continue[29]. Even in November that year the company had got through only by financial contrivance, and with the acquired businesses worsening nothing could be taken for granted[30].

The internet bubble, and shrinking the balance sheet in the collapse

In October 1999 SoftBank converted into a pure holding company[31], reorganising itself to hold and oversee the shares of its operating companies. In February 2000 it invested in Alibaba.com Corporation, making it an affiliate[32] and taking a stake that would later become the group's largest unrealised asset. At the peak of the internet bubble, the surge in the American Yahoo's share price briefly lifted SoftBank's market capitalisation to $185.6B (¥20tn). Most of that valuation rested on unrealised gains related to Yahoo[33], and the gap with the profit its businesses actually generated was wide. Less than six years after the 1994 flotation, a software wholesaler had turned into an investment company with one of the largest market capitalisations in the world[34].

The fall in share prices from the spring of 2000 pushed many of its investees into crisis[35]. SoftBank selected and sold the holdings that had appreciated, using the proceeds to shrink interest-bearing debt while clearing out the assets it had accumulated through the 1990s[36]. In parallel it went ahead with the purchase of Nippon Credit Bank, which had failed, been nationalised and been dealt with using public money[37]. Concerns were raised from the outset that a group centred on an investment company owning a bank would turn it into an in-house lender concentrating credit on affiliated firms[38]. In September 2000 President Homma (本間) of Nippon Credit Bank took his own life, and the wind turned against SoftBank after the acquisition[39].