In March, Vodafone sold Vodafone KK to Softbank for JPY 1.8 trillion ($15.5bn), and Softbank was forced to borrow JPY 1.28 trillion ($10.89bn) from a number of Japanese, US, and European banks to fund the hefty purchase.
Although Vodafone Japan had been profitable, it had been losing customers against its much larger rivals NTT DoCoMo Inc and KDDI Corp. It also suffered from lower ARPU levels than its larger competitors.
Still, for the six months ending September 30, 2005, Vodafone Japan posted an operating profit of 191m pounds ($334m), down from 423m pounds ($741m) in the same six-month period in 2004. Revenue meanwhile rose to 3.7bn pounds ($6.49bn) from 3.68bn pounds ($6.47bn) in 2004.
Earlier this month, Softbank caused market concerns when it reported first-quarter earnings for the period ending June 30. It said operating profits had risen to $478m compared to loss of $27m a year earlier. Sales meanwhile rose to $4.3bn, thanks mostly to the mobile acquisition.
Last week Lehman Brothers cut its price target on the stock to JPY900 ($7.69) from JPY1,125 ($9.61), over concerns at Softbank’s rising debt levels and a recent accounting change concerning the acquisition of Vodafone KK (to be known as Softbank Mobile Corp from October 1), and whether it could consider the buy in terms of goodwill instead of assets.
Analysts at Lehman believed that the ISP had booked a write-down of nearly $4.4bn of assets. This was because the new balance sheet showed that Softbank had fixed assets worth nearly $9bn as of March 31, but during the last quarter it was written down to $4.5bn as of June 30. The ISP said part of the total write-down was goodwill.
The markets took a dim view of this aggressive accounting practice, and were concerned as they had not been excepting such a big write-down with little or no prior notification. That, coupled with the estimated debt levels approaching the $19bn mark at the ISP, and the intense market competition, meant the markets were in unforgiving mood.
