SoftBank Said Near $32 Billion Deal for Mobile Chip Leader ARM

  • Masayoshi Son will get a steady, high-margin cash stream
  • SoftBank to secure a leader in global mobile computing

Softbank Secures ARM Holdings in Record $32B Deal

SoftBank Group Corp. is nearing a deal to buy ARM Holdings Plc for more than $32 billion, people with knowledge of the matter said, securing a slice of virtually every mobile computing gadget on the planet and future connected devices.

The all-cash acquisition could be announced as soon as Monday, according to the people, who asked not to be identified because the information is private. SoftBank will offer 17 pounds per share for ARM, one of the people said. That price represents a 43 percent premium to ARM’s Friday close.

The deal discussions started as a result of an approach from SoftBank, and ARM didn’t run an auction process, two people said. The deal would be the biggest-ever for SoftBank, which under Chairman Masayoshi Son is one of Japan’s most acquisitive companies with stakes in wireless carrier Sprint Corp. and Alibaba Group Holding Ltd. 

A deal would give SoftBank control of a cash-generating mobile chip leader, and a share of revenue in everything from smartphones to connected gadgets in the home. The British semiconductor designer gets royalties when companies from Apple Inc. and Samsung Electronics Co. to Qualcomm Inc. adopt its designs, which are considered power-saving and efficient. 

Chip Dominance

The Japanese company is also buying into a British currency that’s weakened considerably against the yen since the country’s decision to depart the European Union. Beyond its sheer scale, the ARM acquisition is unusual for a company that’s preferred to take control through hefty stakes in its companies. 

“As much as we hated the decision of buying Sprint, we believe if Son wanted to bet on the sterling recovering he picked a great name in the tech sector,” Amir Anvarzadeh, Singapore-based head of Japanese equity sales at BGC Partners Inc., said in an e-mail. “The market will be seeing this acquisition in a positive light despite stretching its balance sheet further.”

SoftBank had been considering a purchase of ARM before the U.K.’s decision to leave the European Union, and the so-called Brexit vote wasn’t a factor in the Japanese company’s decision to proceed, one of the people said. 

The New York Times reported the talks earlier, citing unidentified people. Representatives for SoftBank and ARM in Tokyo didn’t respond to e-mails and phone calls seeking comment on a public holiday in Japan. 

Converted Barn

ARM has come to dominate the design of smartphone chips and is pushing into servers to challenge Intel Corp., evolving from a small lab in a converted barn to a company whose designs are found in 95 percent of smartphones. With the mobile phone market slowing, ARM is adding new customers in the automotive industry and targeting growth in processors for network equipment makers and servers. The company is also exploring chip designs to boost the graphics capabilities of phones.

Any deal for ARM comes less than a month after Nikesh Arora, Son’s heir apparent at SoftBank, quit the company. The former Google executive was brought on board to spearhead a search for the next Alibaba, the Chinese e-commerce company SoftBank backed that went on to pull off the world’s largest initial public offering in 2014.

SoftBank will need to add to its massive debt load to see the acquisition through. The Tokyo-based company carried almost $106 billion of total debt on its balance sheet at the end of March, but less than $23 billion in marketable securities. 

However, the price tag may be justified because ARM’s dominance in mobile computing translates into consistent cash-flow, and its hardware-light business model yields margins north of 95 percent in every quarter since late 2014, Anvarzadeh said.

Government Tensions

ARM’s model is based on the idea of spreading risk and profits. It does the underlying work and makes more money when its customers sell more things. That means brands like Apple and Samsung can focus on higher-level innovations instead of grunt work, while custom chipmakers like Taiwan Semiconductor Manufacturing Co. deal with actual fabrication.

But some smartphone players may dislike the loss of independence at ARM, which is held by mainly institutional investors at the moment, said Gartner analyst Roger Sheng. Japanese ownership may even hamper ARM’s efforts to expand in China, where tensions with its neighbor run deep and the government is pushing local technology companies to come up with alternatives to foreign-owned technology.

“Their clients and partners are happy to see that ARM is independent because it works out better for the ecosystem,” Sheng said. And “the Chinese government has some political issues with the Japanese government so if ARM is acquired by SoftBank I believe China will invest more to develop their own architecture and maybe some Chinese companies will use other architectures.”

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