SoftBank Group Corp’s $1bn bet on Wirecard AG is a boon for the battered German digital-finance firm and secures a major European partner for the Japanese tech conglomerate that’s bulking up in mobile payments.
For SoftBank, the agreement furthers its transformation from a telecommunications operator into a technology investor under founder Masayoshi Son. For Wirecard, the investment means easier access to markets in Asia and a vote of confidence after months of whipsawing shares following allegations of accounting misdeeds at its Singapore unit.
The deal involves a strategic partnership and a potential 5.6% stake at a price that’s 27% below Wirecard’s peak. The transaction, backed by convertible bonds, could make SoftBank Wirecard’s second-largest shareholder after chief executive officer Markus Braun.
The deal is a “clear positive” for Wirecard, Knut Woller, an analyst with Baader Bank AG, said in a note. It will enable the company, based near Munich, to better sell its products in Japan and South Korea, which were still white spots in Wirecard’s regional footprint, he said.
Wirecard shares jumped as much as 10.5%, and were up 8.3% at €133.70 by in Frankfurt trading. The rally lifted the firm’s market value to €16.5bn ($18.5bn), once again surpassing that of Deutsche Bank AG, Germany’s largest lender. Wirecard’s American depositary receipts had climbed after Bloomberg News earlier reported the talks.
The five-year securities will allow an affiliate of SoftBank to acquire the 5.6% holding in Wirecard at €130 a share, the German company said in a statement Wednesday. Wirecard’s revenue soared to €2.1bn last year after an aggressive expansion masterminded by CEO Braun that saw the company buy at least 18 companies over several years.
A cash injection by SoftBank could help shore up investor confidence at Wirecard after a series of reports published by the Financial Times since January that alleged accounting wrongdoing at the company’s Singapore operations. Wirecard had seen its share price fall by more than 40% in the aftermath of the accusations.
Wirecard has repeatedly denied wrongdoing and said an internal investigation cleared it of material faults. It said on April 5 that an accounting executive who has been at the centre of fraud allegations at the Singapore business has left the company. The German financial regulator BaFin had banned short trading for two months until lifting the restriction on Friday.
“SoftBank Group will seek to support Wirecard’s geographic expansion into Japan and South Korea, as well as providing collaboration opportunities within SoftBank Group’s global portfolio in digital payments, data-analytics/AI and other innovative digital financial services,” Wirecard said in its statement.
The partnership would expand Wirecard’s reach in Asia, one of its key growth regions. The firm operates as one of several payment providers for ride-hailing service Uber Technologies Inc, in which SoftBank’s technology-focused Vision Fund owns a 15% stake. A representative for Tokyo-based SoftBank confirmed the statement but couldn’t immediately offer further comment.
The agreement with SoftBank followed weeks of discussions by the companies’ top management, people familiar with the matter said. SoftBank could buy more Wirecard shares on the market at a later stage, one of the people said.
Closer ties with its new investor could help Wirecard win more business from Uber and other portfolio companies under SoftBank’s Vision Fund, one of the people said. It could also provide services to Alibaba Group Holding Ltd, in which SoftBank also owns a stake.
SoftBank has reshaped the startup landscape with the Vision Fund, which is in talks with investors to add as much as $15bn more to its current $100bn value, people familiar with the discussions said earlier this month. Over about two years, the Vision Fund has invested more than $70bn in tech companies.
The payment sector has yet to see the emergence of a clear global leader. PayPal Holdings Inc, Ant Financial, Tencent Holdings Ltd and Paytm have all become major players, albeit in limited geographies, while Apple Incand Samsung Electronics Co haven’t gained significant market share.
“It could potentially be quite savvy for them to invest via a convertible structure because they protect their downside with the bond yet still have upside should the business perform well in the future,” said Rob Chandra, a general partner at Avid Park Ventures and a lecturer at the Haas School of Business at the University of California at Berkeley.
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