Softbank's New Strategy: The Largest LBO in Japan - Case Solution
In the first quarter of 2006, Softbank Corp, a Japanese Internet company, disclosed that it entered into an agreement with Vodafone Group Plc for the purchase of its Japanese unit, Vodafone K.K. for ¥1.75 trillion. To materialize this, Softbank needs to raise around ¥1.2 trillion through leveraged-buyout ("LBO") financing. Softbank's new strategy would be the largest sum ever raised for a buyout by a single Japanese company.
Case questions answered:
- What are the reasons for a company such as Softbank to acquire another company?
- What were Son’s motivations for Softbank’s acquisition of Vodafone KK?
- What could be the pros and cons of this deal for Softbank?
- Prepare Vodafone KK’s pro forma future cash flow statement for 2006–2008.
- Estimate the future exchange rates between the US dollar, British pound, and yen.
- Estimate the all-in cost of debt financing alternatives in terms of yen.
Softbank's New Strategy: The Largest LBO in Japan Case Answers
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1. What are the reasons for a company such as Softbank to acquire another company?
The main reason for a company such as Softbank to acquire another company is primarily to expand its market and business. The company believes that a new economy and a new market are coming.
By acquiring Vodafone, Softbank will have an additional platform, particularly digital platforms, to increase its market and stay competitive in light of the coming digital revolution.
As Softbank had strived to increase its infrastructure, portal, platform, services, and content, it continued to grow by using leverage synergies; this is the main reason why a company such as Softbank acquired another company. The company was Japan’s second-largest broadband internet access provider, and Vodafone K.K. was Japan’s third-largest mobile operator.
By combining their businesses together, they can create synergy from their business consolidation. The synergy can help Softbank improve its overall performance, increase its revenue, reduce costs, and gain more customer base.
According to Son, Softbank’s CEO, by acquiring Vodafone, the company can gain immediate access to a mobile phone business. If they build a mobile service by themselves from the start, they may have to spend trillions of yen. Therefore, it could help reduce the cost and shorten the time to access the business.
Moreover, acquiring Vodafone will add a piece to the structure of the company in line with his vision toward the digital information revolution. This will help Softbank increase the scope of its business, create a positive growth cycle, and gain a larger customer base.
2. What were Son’s motivations for Softbank’s acquisition of Vodafone KK?
Son’s motivation behind acquiring Vodafone is…
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