How SoftBank and Saudi Arabia Settled Their Differences to Birth the World’s Biggest Tech Fund $100 billion Vision Fund has won commitments from Apple, Qualcomm
Japan’s SoftBank Group Corp. 9984 1.86% is poised to launch the world’s biggest technology fund as early as Saturday, capping months of arduous negotiations in which the tech giant haggled with the fund’s main Saudi investor over control of the money, investment strategy and questions about its commitment.
The birth of the Vision Fund, which is expected to start with just under $100 billion in investments and a 12-year term, ushers a huge, new force into a tech-investment world long dominated by Western bankers and Silicon Valley financiers.
The deal combines the deep pockets of a Saudi prince with one of the world’s most ambitious tech investors, a pairing that has drawn commitments from corporate giants such as Apple Inc. AAPL 0.34% and Qualcomm Inc. QCOM 2.76% The fund has also won SoftBank Chief Executive Masayoshi Son access to President Donald Trump, with Mr. Son’s promise to invest $50 billion to create 50,000 new U.S. jobs. The two are scheduled to meet in Riyadh this weekend during the president’s two-day trip to Saudi Arabia.
But getting to this point took far longer than many people involved in the deal expected, with the process exposing the divergent objectives and outlooks of the two principal partners and how challenging it sometimes was for them to communicate, according to interviews with about a dozen people close to the talks.
REUTERS/THOMAS PETER
“We had a difficult time understanding the delays,” one SoftBank executive involved in the deal said in April, after his third forecast that the fund would launch soon was proved wrong. “For months, I’ve been saying we were two weeks away,” he said.
Their negotiating priorities revealed their respective interests, with Mr. Son eager to move ahead quickly to capitalize on what he sees as fast-moving changes in areas like artificial intelligence, robotics and biotech.
“We can’t wait. We need this now,” one SoftBank executive recalled Mr. Son saying in February.
Meanwhile, Mr. Son’s counterpart in the deal, Mohammed bin Salman, the 31-year-old deputy crown prince of Saudi Arabia, wanted to ensure his country not only would stand to profit financially but also would reap knowledge and technology to help it diversify beyond oil.
Saudi negotiators wanted to make sure the country’s sovereign-wealth fund wasn’t merely treated by its foreign partners as an easy source of capital or “a sovereign deemed to have deep pockets,” said a person familiar with the Saudi side’s thinking.
The Vision Fund was the brainchild of Mr. Son, 59 years old, a Korean-Japanese entrepreneur known for his brash investment style and a 300-year view on technological trends, and Mr. Salman, also known by his initials MbS. He is viewed as the face of change in the insular kingdom and a major proponent of weaning the country off oil.
Mr. Son yearned to become a technology power outside of Japan, where his investments helped turbocharge the country’s broadband and smartphone industries. But SoftBank’s multibillion-dollar purchases of mobile operator Sprint Corp. in the U.S. and semiconductor design firm ARM Holdings Inc. in the U.K. had saddled it with too much debt to continue spending freely, and Mr. Son fretted that without another source of cash he would miss out on an investment gold rush.
Mr. Salman was looking for ways to implement an ambitious reform plan that calls for increasing investment in everything from technology to financial services. The prince had money: He controls Saudi Arabia’s Public Investment Fund, a sovereign-wealth fund that could become the world’s largest if—as widely expected—it is the primary recipient of the money raised from a proposed listing by state-owned oil giant Saudi Arabian Oil Co., or Saudi Aramco.
The pair agreed to join forces during a 45-minute meeting in Tokyo in September, and they announced the agreement to launch the Vision Fund in October, with $45 billion from PIF and $25 billion from SoftBank.
Other investors such as technology giants Apple and Qualcomm were signaling interest, and Mr. Son pushed to get the deal closed by the end of December.
Both Apple and Qualcomm eventually said they would put money in the fund, as didOracle Corp. founder Larry Ellison, Taiwanese manufacturer Hon Hai Precision Industry Co. , or Foxconn, and Abu Dabhi sovereign-wealth fund Mubadala Investment Co. Some will invest in the first initial round and the rest in a second round to close later.
One factor hampering the already complex negotiations was that each step required formal approval on the Saudi side from multiple levels of government. Many measures needed approval from MbS himself, whose reformist initiatives such as eliminating energy subsidies and reducing public-sector benefits have been controversial at home. That meant arranging high-level talks between the prince and Mr. Son.
MbS “wants absolute control over anything, especially any matters concerning strategy,” said a person close to the prince.
Mohammed bin Salman, above from last month, is the 31-year-old deputy crown prince of Saudi Arabia. He is known as the face of change in the insular kingdom and a major proponent of weaning the country off its dependence on oil. PHOTO: REUTERS
PIF too was on a steep learning curve, people from both sides of the deal say. It had little experience with overseas investments and was still setting up a corporate governance structure and overall investment strategy.
Although some level of wrangling is common in such deals, the back-and-forth from the Saudi negotiators, mostly PIF lawyers, made SoftBank executives begin to wonder if the Saudis were stalling. On at least one occasion, SoftBank executives sought assurance from PIF that the fund wouldn’t be scuttled. PIF negotiators assured their Japanese counterparts that MbS was 100% committed to its success.
SoftBank, which has 80 people in Silicon Valley and London looking for and processing deals, already has lined up a dozen deals of a billion dollars or more for the fund to invest in, with plans to work on “blockbuster” transactions of tens of billions of dollars in the future, said a person who helped set up the fund.
Eager to launch the fund before the monthlong Muslim holiday of Ramadan, which begins next week, SoftBank officials put together a daily to-do list to keep the talks on target.
The main sticking point was how much say the Saudi investors would have over where the Vision Fund puts its money.
SoftBank executives initially envisioned having complete control over decisions about what to invest in, with Mr. Son playing a central role.
PIF repeatedly sought assurances from SoftBank that the Vision Fund invest in companies and technologies that could help the kingdom’s quest to diversify its economy.
To that end, the Saudi negotiators focused on who would be on the investment committee, how and when investors would get information on deals in the pipeline, and how much say they would have relative to smaller investors.
SoftBank agreed to let the Saudis sit in on deal meetings, although they won’t get a vote on the investment committee.
But PIF insisted it get the right to veto deals—something Mr. Son initially resisted. Eventually, SoftBank agreed to grant veto rights for deals over a certain size, with both sides accepting a high threshold.
PIF negotiators also were concerned about potential conflicts of interest. SoftBank had proposed that all of its investments over $100 million would go to the fund. That would include its recent $5 billion investment in Chinese ride-hailing company Didi Chuxing Technology Co., a rival of the U.S.’s Uber Technologies Inc. But PIF last year invested $3.5 billion in Uber. The two sides agreed that the Didi investment and any other future ride-hailing investment wouldn’t go to the fund.
The Saudis also negotiated paying SoftBank a lower management fee than the 1% of assets under management it charged other partners. In addition, PIF’s negotiators asked for a way to link fund managers’ compensation to fund performance and a provision to claw back fees in case of bad behavior.
“The Saudis will be given the respect they deserve,” as the fund’s biggest investor, one person familiar with SoftBank’s stance said.
—Alex Frangos, Jenny Strasburg and Summer Said contributed to this article.
