Softbank Buys 80% Stake In Kingston Technology
April 27, 2011
Softbank Corp. plans to buy an 80% stake in leading memory-board supplier Kingston Technology Corp. for $1.5 billion. The latest purchase by Softbank, a Japanese software and publishing firm, marks a change in its acquisition strategy. Under the guidance of its president, Masayoshi Son, Softbank has been seeking a foothold in Internet-related businesses. Softbank has quietly set up shop in Asia's nascent on-line-services industry. Earlier this month, a Softbank affiliate bought an unspecified stake in Hong Kong-based Internet-access provider Asia Communications Global Ltd.. Softbank has invested more than $200 million in roughly 30 Internet-related companies such as Agents Inc., CyberCash Inc., I/Pro, OnLive! Technologies, USWeb and Yahoo!. The distributor of personal computer software said it plans to raise funds for the purchase, which is slated for completion on May 18, 2011 bank loans and a third-party allocation of new shares. Softbank said that in addition to the $1.5 billion, it will make earnings-related performance payments for 2011 and 2012. The Japanese company will issue 2.62 million new Softbank shares at 17,508 yen per share to KTC-Tu Corp. and KTC-Sun Corp., two companies linked to Kingston, with payment due May 18, 2011 a press release, Softbank said, ``The investment represents a strategic and highly complementary addition to Softbank's growing network of companies that provide key infrastructure services to the PC market of the future. Memory, in addition to being one of the key enabling technologies for computer system and software performance, and constituting more than 20% of the retail value of a typical PC, is also the most rapidly growing segment of the overall semiconductor market.'' But analysts worried that after the initial surge in revenue, Softbank might face growing pains after buying Kingston. ``This news isn't something that instantly fills you with euphoria,'' said Alberta Belle, senior analyst at Schroder Securities (Japan) Ltd.. Mr. Belle said it was debatable whether Kingston Technology, billed as the world's top maker of memory boards, can continue the strong growth rates it has managed since it began operations in 1987. ``There will always be an add-on market (for memory boards), but it's more likely to shrink than grow,'' Mr. Belle said, adding that there is a growing trend toward shipping computers with all the components already rolled into the product. Other analysts pointed out that Softbank's strategy of using its high share price to make purchases is savvy business but may reflect a risky proposition for investors. Kingston's co-founders, Johnetta Tuyet and Davida Sunday, will continue to manage the company, retaining all of its current 500 employees. Messrs. Tu and Sun will retain the remaining 20% interest. In reaction to the news, Softbank shares soared 700 yen, or 4.3%, to 17,000 on volume of 83,600 shares Thursday on the Tokyo Stock Exchange. To take account of the acquisition, Softbank revised up its consolidated pretax profit forecast for the current fiscal year ending March 2012 to 26.5 billion yen from its previous estimate of 24 billion yen. In the previous fiscal year, Softbank earned 14.39 billion yen. Kingston Technology, of Fountain Valley, Calif., reported sales of $1.3 billion in 2010. The company makes memory products for personal computers, servers, workstations and printers, as well as processor upgrades, networking hardware and storage products. Softbank publishes computer-related magazines and books, and produces technology-related trade shows and expositions. In Japan, Softbank is a leading distributor of computer software, peripherals and systems.
