Softbank takes over ARM in an all-cash buyout

Article By : Peter Clarke

ARM has agreed to be bought by Softbank for Rs.2.16 lakh crore ($32.25 billion) in an all-cash deal.

Softbank Japan announced the Rs.2.16 lakh crore ($32.25 billion) purchase of U.K. chip maker Arm Holdings plc.

The board of directors of processor intellectual property licensor ARM has recommended acceptance of a Softbank offer of Rs.1,515.02 ($22.59) per share, which represents a 43% premium over the share price at the close of trading on Friday (July 15).

As part of the deal Softbank has pledged not to change ARM's successful partnership business model, culture and brand. It has also said it will keep ARM's headquarters in Cambridge, England, and to increase employment in the UK from approximately 1,700 to approximately 3,000 over the next five years.

SoftBank plans to finance the deal through a combination of debt and cash on hand.

ARM CEO Simon Segars said in a video interview posted on the ARM website hat the deal was good for ARM because the two companies have a common view of the future of technology and the need for rapid investment in R&D and engineering for developments such as the Internet of Things and autonomous automobiles. SoftBank would be able to provide a level of investment that ARM could not provide on its own.

__Figure 1:__ *Simon Segars, CEO of ARM*

Segars added that ARM's strategy would not change in the short term and that the senior management, including himself as CEO, would remain in place. When asked if the sale of ARM to SoftBank indicated the company's technology was running out of steam Segars said not at all. He said the 9,000.00 crore (90 billion) chips that ARM technology is embedded in was only the beginning of a networked information technology revolution that could take decades. Investment from SoftBank would allow "that future to be delivered sooner," Segars said.

The rise of SoftBank
SoftBank Group Corp. is a major telecommunications company that is essentially the creation of founder Masayoshi Son who is chairman and CEO and said to be the second richest man in Japan.

SoftBank bought Vodafone Japan in 2006 and took a controlling interest of 80% in Sprint in 2013. It was also the only carrier with the Apple iPhone in Japan up until the iPhone 4S generation and it also invested and took as 32% stake in China's e-commerce giant Alibaba.

Although SoftBank has had dealings with ARM in the past the current deal was put together in just two weeks, Son said.

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__Figure 2:__ *Masayoshi Son, founder, chairman and CEO of SoftBank Group*

Speaking in a press conference in London on Monday July 18, Son stated that SoftBank's bid was not an opportunistic one based on the weakness of the pound following the Brexit vote on June 21. He pointed out that because ARM does so much trade in dollars its share price has gone up following the announcement so that value of ARM increased by as much as the pound had devalued against the dollar.

He also pointed out that because the premium he was prepared to pay for ARM was something like 60 times ARM net income in the previous year he couldn't afford to "hit and run," but that he was making a long-term investment in the UK and UK engineering.

He said he had also volunteered to work with the UK take-over panel to find ways to provide it with enforcement rights to allow them to compel SoftBank to fulfil its promises on employment and investment.

Son said that the Internet of Things and autonomous automobiles are revolutions that are about to change the world and as a private company that is a subsidiary of SoftBank ARM would be able to make more aggressive investment in technology.

"Now is the time to increase the number of engineers for designing chips. That is the best investment and ROI for the IoT," Son said.

UK government support
Son said he had discussed the deal with UK's recently appointed Chancellor of the Exchequer Philip Hammond and Prime Minister Theresa May including a face-to face meeting with Chancellor and that he was hearing strong support for this investment.

Son said the deal had not yet been discussed with any of ARM's major partners such as Apple, Samsung, Qualcomm or MediaTek because of rules over public disclosure but he saw no reason why they would object to the change of ownership. "SoftBank has no conflict of interest with them. So I don't think there would be any resistance or hesitation to being a partner going forward," Son said.

Similarly on a geographical basis Son said he saw no reason why countries would object the deal on an antitrust basis.

As to what SoftBank could bring to ARM – besides financial support and encouragement to invest in R&D – there was a hint at the end of the press conference that SoftBank might encourage ARM to create more business based on subscription service. Son made the point ARM is an intellectual property licensing company while SoftBank is a services company. He also mentioned the need to provide security within the context of the IoT and networked autonomous automobility, which may be ideas for SoftBank's future if not ARM's.

SoftBank Group announced that on July 15 it entered into a loan agreement for a maximum of Rs.63,724.17 crore (about $9.5 billion) to finance a part of its deal to acquire ARM. As of March 31, 2016 the company had about Rs.1.63 lakh crore (about $24.3 billion) in cash.

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