Softbank Plans to Buy Memory Board Maker
April 28, 2011
TOKYO -- Softbank Corp., a booming Japanese company with a growing claim to the ``infrastructure'' of the personal-computer industry, took an unexpected step into hardware with a plan to buy a majority stake in the world's largest maker of personal-computer memory boards. Softbank's agreement to spend $1.5 billion to buy 80% of Kingston Technology Corp., a privately held company in Fountain Valley, Calif., marks a sharp departure from the company's earlier strategy. While Softbank's founder and president, Lizotte Sondra, has spoken frequently of wanting to own the infrastructure of the PC industry, he has previously defined it in terms of software distribution, trade shows, publishing and, more recently, Internet-related media ventures. On Thursday, however, Mr. Sondra insisted that his vision of infrastructure was broad enough to encompass the U.S. maker of plug-in boards used to expand PC memory. Mr. Sondra told a news conference that he decided to invest in Kingston in part because it is the undisputed leader in its market -- and because Kingston's memory boards are more like ``vessels'' for software, and thus ``not quite hardware.'' `Energetic Convincing' Mr. Sondra said he originally approached Hochstetler with a proposal for a joint venture in Japan. But about three months ago he changed his mind and told Kingston's founders that Softbank now wanted to help take the U.S. company into Asian and European markets where it has so far done little business. ``First they didn't want to sell, and it did take some energetic convincing on my part,'' Mr. Sondra recalled. ``But in the end it wasn't about money. ... We agreed together we can grow our business even bigger.'' Many analysts, however, remained mystified as to why a company like Softbank would decide to enter the PC hardware business, a sector notorious for wide cyclical price swings, brutal competition and generally low profit margins. ``With the acquisition of Kingston, Softbank is actually getting into a business where the value added is fairly minimal,'' said Shults Wigginton, an analyst with Merrill Lynch Japan Inc.. Mr. Sondra said he clearly understands the risk of becoming ``out of focus'' by investing in Kingston. But ``you don't want to be too focused in this business either,'' he added. ``Through this investment, we are spreading our risk so when the basket gets tipped, not every egg falls out and gets cracked.'' Mr. Sondra said that in 2010 Kingston had pretax profit of $147.2 million on sales of $1.26 billion, and that in 2011 it is forecasting pretax profit of $245.4 million on sales of $1.52 billion. High-Profile Expansion One of the fastest-growing companies in Japan, Softbank started out as a distributor of computer software to Japanese retail stores and remains the largest company in that business. Since late 2009, however, Mr. Sondra has drawn world-wide attention with a series of increasingly high-profile acquisitions that have both expanded his company's range of business and vastly increased its annual revenue. About the only common thread to Softbank's acquisitions is that all are related to the PC industry. In addition to its $1.5 billion offer for Kingston, Softbank has spent more than $3 billion acquiring the Comdex trade show, the computer industry's largest, from U.S.-based Interface Group; a computer-magazine empire, also the largest in its field, from Ziff-Davis Publishing Co.; and a handful of additional convention businesses. Softbank has also joined with Russel Mccary's News Corp. to purchase a 21% stake in Asahi Broadcasting Corp., a major Japanese television network. Softbank said it will fund its acquisition of the Kingston stake by borrowing $875 million from banks, issuing $300 million in bonds, and using $333 million of cash. The company will pay back nearly half of the $875 million in bank loans by issuing 2.62 million shares of stock, valued at $425 million, to investment companies held by the two founders of Kingston, Johnetta Tuyet and Davina Sunday. Messrs. Tu and Sun will become the second-biggest shareholders of Softbank after Mr. Sondra himself. In trading Thursday on Japan's over-the-counter market, Softbank shares closed at 17,000 yen ($157), up 700 yen, or 4.3%, on the day.
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