Masayoshi Son, the enigmatic founder and CEO of SoftBank Group, is known for his bold pronouncements and even bolder investment strategies. In the Q4 2017 earnings call OTCPK:SFTBF, amidst discussions of booming Vision Fund investments and the surprising profitability of Sprint, a seemingly insignificant comment from Son revealed a potential goldmine for astute investors.

Son, reflecting on the agreed merger between Sprint and T-Mobile, admitted to feeling "embarrassed" about compromising on SoftBank's ownership stake in the new entity. This unexpected concession, a departure from Son's usual tenacity for control, could point towards a shift in SoftBank's priorities and a potential undervaluation of its remaining Sprint stake.

Historically, Son has fiercely guarded control of his investments. His relentless pursuit of ownership and decision-making authority has been a hallmark of SoftBank's strategy. Yet, in the case of Sprint, Son readily accepted a diluted ownership of 27% in the new company, despite initially demanding equal ownership. This begs the question: what prompted such a drastic change in approach?

Son himself attributes the change to a renewed focus on SoftBank's "Synergy Group" strategy. This strategy, a unique approach to creating a network of interconnected, high-growth companies, has been a long-held ambition for Son. The successful launch and performance of the SoftBank Vision Fund, a testament to the viability of the Synergy Group strategy, seems to have emboldened Son to prioritize long-term value over immediate control.

The potential gains from the Sprint-T-Mobile merger are immense. Son anticipates synergies of around JPY 5 trillion, a staggering figure that could catapult the combined company to the top of the U.S. telecom market. This upside potential, coupled with the expectation of robust free cash flow growth, paints a compelling picture for the future of the new entity.

From "Shame" to Opportunity

Here's where the "shame" turns into an opportunity. By relinquishing control, SoftBank secures a substantial premium on its remaining Sprint stake, effectively converting a potential control premium cost into a premium gain. This unexpected windfall, combined with the projected future growth of the combined company, positions SoftBank to reap significant financial rewards from its remaining 27% ownership.

This seemingly minor shift in strategy could have profound implications for SoftBank's valuation. If Son's confidence in the Synergy Group model holds true, the diluted ownership in Sprint, far from being a loss, could be a strategic masterstroke. Investors who recognize this potential and capitalize on the perceived "loss" of control could find themselves reaping the rewards of Son's long-term vision.

Examining the Numbers

Let's examine the numbers. SoftBank acquired Sprint for JPY 2 trillion, and even before the merger, the equity value has increased to JPY 2.2 trillion. With the projected synergies and market dominance of the combined entity, the JPY 530 billion equity value of SoftBank's 27% stake is poised for explosive growth.

Beyond Financial Gains: The Synergy Group

Beyond the financial gains, there's another layer to this strategic maneuver. By focusing on the Synergy Group model, SoftBank is building a network of companies that can collaborate and innovate across sectors. This interconnected ecosystem, fueled by AI, IoT, and robotics, could become a formidable force in the future information revolution.

SoftBank's Track Record: Risky Bets, Handsome Rewards

"Fun Fact: SoftBank's investment history is littered with seemingly risky bets that have paid off handsomely. The company's early investment in Yahoo! Inc. led to the creation of Yahoo! Japan, which ultimately outperformed its U.S. parent. Similarly, the acquisition of ARM Holdings, a chip designer with a near-monopoly in the mobile market, was initially met with skepticism but has proven to be a strategic goldmine."

Conclusion

Masayoshi Son's "embarrassment" over compromising on Sprint's control could, in fact, be a signal of a much larger strategic play. By focusing on the immense upside potential of the Synergy Group model, Son is demonstrating his commitment to long-term value creation. Investors who recognize this shift and capitalize on the market's misperception could find themselves riding the wave of SoftBank's information revolution dominance.