I first met Masayoshi Son back in 2000, when he was in Davos touting an investment he had just made in a company called Buy.com. “Buy.com thinks outside the box,” he said at the time. “They are going to sell you anything you want, for less than they paid for it.” It reminded me of an old joke, whose punchline was: “and make it up in volume.”
A few months later, the bubble burst, and Son’s net worth dropped by $70 billion – the largest financial loss ever recorded by any one person in history. But that hasn’t stopped him from thinking big. His early investment in Alibaba gave him the resources to build Softbank into the 110th largest company on the Fortune Global 500…owning Sprint, among other things.
This morning he took another big jump, agreeing to buy chipmaker ARM for a whopping $32 billion – a 40% premium over the company’s closing price on Friday and the biggest ever deal involving a European tech company. “This is one of the most important acquisitions we have ever made,” he said, “and I expect ARM to be a key pillar of SoftBank’s growth strategy going forward.”
Son has said his goal is to build Softbank into the Number One company in the world. Two years ago, he recruited Google super-executive Nikesh Arora to help him do that, and designated him as his successor. But last month, Arora abruptly departed, after Son decided he needed to delay his retirement so he could help Softbank navigate its way through the next big thing. (Read Erin Griffiths interview with Arora about his resignation here.) “I think we are about to see the biggest paradigm shift in human history,” Son told shareholders last month. “The singularity is coming. Artificial intelligence will overtake human beings not just in terms of knowledge, but in terms of intelligence. That will happen in this century.”
Son sees the ARM acquisition as giving him a major player in the Internet of Things. It also gives a British government besieged by Brexit something to crow about…even while losing control of its most important technology company. Philip Hammond, the new Chancellor, said the deal shows that “Britain has lost none of its allure to international investors. Britain is open to business…and to foreign investment.”
More news below.
• I’m Not Vindictive, But…
President Recep Tayyip Erdogan’s reaction to the failed coup attempt is in full swing, with over 6,000 people arrested including Erdogan’s own top military adviser Ali Yazici, 29 generals and 20 colonels. Of more concern to business is the outlook for civil society in the shape of the independent judiciary—over 2,700 judges and prosecutors have been fired, including two from the Supreme Court. Reports suggest only brief interruptions to the operations of the country’s biggest auto plants (which mainly serve the EU and Middle Eastern markets). For U.S. business, there may be complications due to the presence in the U.S. of the self-exiled cleric Fatullah Gulen, whom many in Turkey suspect of instigating the plot. Secretary of State John Kerry says the U.S. so far hasn’t received any request for extradition. European businesses may be more concerned at reported plans to reinstate the death penalty, which would jar the recent rapprochement with the EU.
• Crisis? What Crisis?
A quick end to the attempted coup has allowed global stocks to open higher, focusing instead on the strong economic data out of the U.S. on Friday. Retail sales and industrial output both came in ahead of expectations, leading both the New York and Atlanta Federal Reserve Banks to raise their forecasts for second-quarter GDP by 0.1 percentage point each. Whether the S&P500 can build on last week’s record will depend on the flood of earnings due this wee: Bank of America IBM, Hasbro, EMC and Netflix all report today. Back in Turkey, local markets are sharply lower: the benchmark stock index is down 5%, the currency still down 2% against the dollar and 10-year bond yields nearly half a percentage point higher, in a reflex move to price in higher uncertainty, and the near-certainty of a further drop in vital tourism receipts.
• The Trump Show
The Republican National Convention opens today with candidate Donald Trump expected to focus on projecting an image at once more family-oriented and more statesmanlike than the one that brought him his sweeping primary victories. In line with tradition, the prospective First Lady, Melania Trump, will be the top speaker today, while his four grown children will make staggered speeches throughout the week. Breaking with tradition, at least a dozen Senators, four governors and two former presidents will skip the convention, reflecting the divisions in the GOP that Trump’s candidacy has caused. The first day’s proceedings are certain to be overshadowed by the killing of three police officers in Baton Rouge on Sunday. Trump styled yesterday’s outrage as an outcome of ‘weak leadership’ by President Barack Obama. Statistics show that police fatalities have in fact fallen steadily under Obama, continuing a 35-year trend.
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• Brexit Armageddon Arrives…oh, No, Wait
On the subject of Brexit-related bargains, the U.K.’s biggest online house search engine Rightmove reports that the prices of new listings fell 0.9% on average in the month to July 9, a data point immediately pounced on by the anguished metropolitans of London as proof that the much- threatened post-Brexit Housing Armageddon is upon them. Rightmove is more nuanced: it calls the move “within usual expectations for the run-up to the summer holiday,” and says buyer demand is mainly down due to a high base effect: it had surged last year in the aftermath of the general election. Demand is in line with 2014, which Rightmove says is a better comparison. More interestingly, Reed, the U.K.’s largest job site, says its new job listings in the three weeks since the June 23rd vote are up 8% year-on-year, while 83% of companies say they won’t be freezing recruitment. Education and IT vacancies top the list. On the downside, the construction sector contracted for the fifth straight month in May, according to official data.
Around the Water Cooler
• VW to Compensate U.S. Dealers
Volkswagen promised to compensate its 650 U.S. dealers within a month for leaving them sitting on unsellable stock after the diesel emissions scandal. The company met with dealers’ representatives on Friday to discuss how the planned fix-or-buyback program for some 500,000 vehicles will work. Few details were available, but the issue of compensation for franchisee dealers is still one of the great unanswered questions, 10 months after the scandal broke. VW’s sales in the U.S. were down 15% year-on-year in June, while its market share in the EU hit a five-year low after an eighth straight drop, according to data released last week.
WSJ, subscription required
• Bridgewater Slows Hiring
The world’s biggest hedge fund is reportedly slowing down hiring, against the backdrop of a year which has had more than its fair share of market volatility. The company’s benchmark Pure Alpha fund, which makes bets on the big global economic trends of the day, is down 8.8% so far this year. The New York Times reports that Ray Dalio’s $154 billion juggernaut Bridgewater Associates has been telling recruitment consultants to cancel many job interviews, even those at an advanced stage of the hiring process. It has also told some of its headhunters it won’t be needing their skills for the time being.
• Talking Pets Beat Female Ghostbusters
The all-female reboot of Ghostbusters pulled in a solid $46 million at U.S. box offices on its opening weekend, but its producer Sony is going to need it to run and run if it wants to get back its $144 million (excluding marketing costs) that it spent. Unsurprisingly, women accounted for 54% of ticket buyers. More worryingly, over half of the audience was over 25, suggesting that one of its “most important brands” (sic) had lost its power to attract Millennials. Either way, it was overshadowed by Universal’s The Secret Life of Pets, which dominated the box office for a second week running, pulling in over $50 million. Finding Dory notched up another $11 million, makng it the highest-ever grossing animated release in the U.S..
• Baidu Follows JD into ZestFinance
Search giant Baidu has become the second big Chinese company (after JD.com) to invest in ZestFinance, a startup founded by ex-Google CIO Douglas Merrill, which blends machine learning with big data analysis to pinpoint more accurate credit scores. It’s an interesting glimpse of how big data technology can exploit and, arguably, fill gaps in countries where official data gathering is inadequate. China provides a huge opportunity for ZestFinance because there is no centralized credit bureau like in the United States. Baidu will be using ZestFinance’s underwriting technology to determine creditworthiness of its users. For example, if an adult user is searching for video games in the middle of the day, it could be determined that he or she doesn’t have a job and isn’t a student, which is data that can be used towards determining if that user has good credit.