Softbank Corp. (Japan)(OTCMKTS:SFTBY) made an agreement with Fortress Investment Group LLC (NYSE:FIG) to purchase it for $8.08 per share and investors are collecting payouts until the close. Analysts consider it to be a strong buy. The contract highlights a great risk adjusted return, as Softbank has the funds, both management teams intend it to happen and market don’t foresee regulatory concerns.
In the last trading session, the stock price of Fortress gained over 28% to close the session at $7.99. This market is extremely close to the deal price of $8.08, but investors may likely pick up dividend payout of $0.09 and maybe another one. It is a return of anywhere between 3.42% and 4.55%. Taxation of Fortress payout isn’t always forthright, as showed by the announcement from previous quarter. Assuming this completes in next two quarters, the unlevered return is not bad. However, the peril of the agreement not closing looks remote which makes it an extremely good risk/adjusted return.
Softbank doesn’t have to consider twice on spending $3.3 billion. The company boasts an enterprise worth of $188 billion, and cash of $26 billion on its balance sheet. A single quarter of cash flow (free) compensates for the entire acquisition deal but Fortress actually has strong net assets on its balance sheet via investments in funds etcetera. It implies the deal really stretches Softbank’s liquidity by just $2.2 billion.
The merger deal was unanimously allowed Fortress’s board. Principals Wes Edens, Randy Nardone and Pete Briger will continue to lead company and will put 50% of their after-tax gains from the deal in Fortress Managed Funds and vehicles, and also in stock securities of Softbank and its arranged funds and vehicles. They are even voting their 34.99% in support of the deal. This clearly states they consider this is an interesting deal.