SoftBank Group Nears Deal to Buy ARM Holdings

http://www.nytimes.com/2016/07/18/business/dealbook/softbank-group-nears-deal-to-buy-arm-holdings.html?_r=0

by anyfoo • 10 years ago

357 98 10 years ago

dbcooper• 10 years ago

The FT claims that the deal has been done for £23.4bn.

https://next.ft.com/content/0cc23483-7681-3018-8e9d-80c2dd77...

Japan’s SoftBank has agreed to acquire Arm Holdings, the UK’s preeminent technology company, for £23.4bn in an enormous bet by the Japanese telecoms group that the smartphone chip designer will make it a leader in one of the next big tech markets, the internet of things.

Apparently that is a 40% premium on market cap. [1]

[1] http://www.bbc.com/news/business-36822272

adamnemecek2• 10 years ago

in an enormous bet

It's a lot of money but I'm not sure it's that much of a bet.

voltagex_• 10 years ago

Does anyone know how (if) currency conversion is done with amounts this large? I imagine with the volatility of the GBP right now this could have been more expensive if the conversion was done a few weeks ago.

akiselev• 10 years ago

It's more likely that currency con version at this scale will be largely on paper accounting because 10s of billions of pound sterling is probably more than most foreign currency reserves of countries much bigger than SoftBank usually carry.

For example, a SoftBank subsidiary can probably take out huge loans from UK/international institutions and collateral/pay the loan with other assets in other jurisdictions. I believe this is how many companies avoid repatriation taxes: by taking out a loan in the US and making the payments to financial institutions overseas.

lancewiggs• 10 years ago

It's pretty easy - the nominal amounts for derivative trades can be extraordinarily high and currency markets are smaller but in the trillions of dollars per day.

They can hedge this (lock in the price in Yen or USD) now and be sure of not losing on currency shifts when it comes time to make the transaction work.

lordnacho2• 10 years ago

It's not hard to do an FX trade of this size. I've written programs that trade billions of FX a day, and that was for a teeny tiny fund.

For large amounts, you call the broker, which I suppose whatever investment bank is running the deal will have figured out how to do.

But 24B is a drop in the ocean.

ktamura• 10 years ago

This is the opportunistic genius of Masayoshi "Masa" Son as one of the most successful technology investors of our time. He's taking advantage of the weak GBP thanks to the whole Brexit fiasco. As a major carrier in Japan and an owner of Sprint, this move makes total sense.

adamnemecek2• 10 years ago

This makes me wonder when did the acquisition talks begin.

adventured• 10 years ago

Even more so when you look at the Yen vs GBP in particular. The Yen is up ~40% against the GBP in the last year.

hendzen• 10 years ago

FYI, much of ARM is held via ADRs (American Depositary Receipts) denominated in USD. This is how ARM shares trade on NASDAQ (under the ticker ARMH) in addition to trading on LSE.

CyberDildonics• 10 years ago

Don't forget a stronger yen which could face enormous volatility in the future.

hkmurakami• 10 years ago

Since ARM had been a mainstream acquisition target for years now, I'd suspect this owes more to their M&A team rather than their CEO.

Estimating ARM's future earnings is relatively straightforward, and Softbank, like Berkshire, loves free cash flow. It doesn't require a visionary to go through the calculus of an acquisition under these parameters; it requires a team of shrewd finance professionals.

jldugger2• 10 years ago

Intel doesn't exactly shy away from purchases either; is it likely that the only reason they haven't made an offer anti-trust regulations?

suvelx• 10 years ago

You think the deal was started, and nearly completed in a few weeks? Surely the deal had been going on for a while longer than brexit turmoil

justincormack• 10 years ago

The BBC it was done in two weeks.

lordnacho2• 10 years ago

It's quite possible to do these deals in short time.

For one, the young investment bankers and lawyers are accustomed to staying up late when there's a deal on. I used to live with one, and it was simply part of the job that the job was everything, all the time. Staying up an unhealthy amount is what they expect.

Also, this isn't a completely out-of-the-blue deal. Everyone in the M&A space would have given some thought as to which firms would potentially merge, and they would have made presentations to the bosses of the involved firms airing the pros and cons, the possible financials, the antitrust side, and various other issues.

numbsafari• 10 years ago

It seems like SoftBank is very willing to do deals with very little due diligence (based on some, uh, experience).

In this case, at this size, my guess is they've been keeping tabs on ARM for a long time and maybe decided to just pull the trigger with Brexit going on.

Analemma_• 10 years ago

They might've been planning and negotiating the deal as a 'just-in-case' far ahead of the vote. It's not like people didn't know the pound was going to plummet in the event Leave won.

Peroni• 10 years ago

Brexit didn't make ARM cheaper. On referendum day it was 1567 yen/share. On Friday was 1670 yen.

https://twitter.com/jamestitcomb/status/754966707769315333

pbhjpbhj• 10 years ago

The referendum was announced in early Feb 2016 and markets started to move then, http://www.xe.com/currencycharts/?from=JPY&to=GBP&view=1M. See that step that looks like the half-profile of Table Mountain, that's referendum day.

fulafel• 10 years ago

Value of ARM should stay the same when GBP goes down (as viewed in yen or USD) since it's selling to the global market. Or maybe go up since ARM's UK expenses are now lower. It's the pound that's depreciating, not ARM.

simonh• 10 years ago

Good point, ARM's revenue in the form of licensing fees and royalties is denominated in Dollars.

runeks• 10 years ago

    > He's taking advantage of the weak GBP thanks to the whole Brexit fiasco.

More likely: SoftBank Group is taking advantage of its ability to issue debt at historically low interest rates, thanks to the monetary policy of the Bank of Japan.

SoftBank's net-debt-to-equity ratio has risen from 0.6 to 3.5 from FY2011 to 2015: http://www.softbank.jp/en/corp/irinfo/financials/results/hig....

That being said, SoftBank purchased ARM using GBP (I assume), so they would need a way to convert their cheaply acquired JPY to GBP. I wonder if they are able to purchase foreign companies for JPY at, say, a 10% markup. The sellers would be able to sell this JPY on the market as soon as they receive it, and SoftCorp would be left with a brand new company in its portfolio and some JPY liabilities (they are issuing unsecured, subordinated (5-year?) JPY bonds at 2.5% p.a.: http://www.softbank.jp/en/corp/irinfo/stock/bond/).

anonbanker• 10 years ago

Neat! now my company can no longer worry about FIVEEYES having control of the spec, or the company that makes it. probably the best news of the year for me.

analog31• 10 years ago

Maybe I'm not thinking straight because I'm up to my ears in ARM chips (my cell phone, tablet, half a dozen homemade gizmos, etc.). And I know they don't actually make the chips themselves, but GBP 2.2e+09 doesn't seem like a lot for a technology that has so much influence.

Correction: 2.2e10, as noted. Now I know I'm not thinking straight.

davidfrankl• 10 years ago

It's 2.2e+10

wlievens• 10 years ago

It's 40% above the current market cap.

jhou2• 10 years ago

I was surprised ARM hasn't been bought by a larger conglomerate yet. SoftBank is way ahead of the game.

cstross• 10 years ago

The problem with ARM is that the most likely suitors don't dare buy them -- if Intel, Apple, Microsoft, or Google bought ARM Holdings, the others (all rivals) would start looking for an alternative architecture to run on and the licensing fees would take a nose dive.

It's one thing to license an architecture from an independent, scrupulously neutral third party: another entirely to gamble your business platform's future on a rival's goodwill.

Softbank isn't an obvious direct platform-level competitor for Intel or Apple or Samsung or the others, so may be an acceptable acquisitor who won't frighten ARM's licensees into abandoning ship.

viycyjcutc• 10 years ago

Very much this. If this deal goes through, I have a feeling that we may see ARM begin to give way to RISC-V. Perhaps it might happen slowly at first, but the mobile space is already prepared for a switch given that Android is virtualized and Apple is switching to abstracted "bitcode."

onion2k• 10 years ago

That assumes someone would buy them as an ongoing business. Apple could have bought them specifically in order bring the ARM designers in to Apple and force their rivals to switch - an acquihire on a massive scale. Using an ARM designed chip is an advantage, and taking that advantage away from your competition could be a very good thing for your business.

I'm glad that didn't happen though.

samfisher83• 10 years ago

Financially the deal doesn't make sense. ARM has been around for a while their FCF ~500M a year. At $30 billion purchase price you are paying 60x FCF. Apple and Qcom just license the instruction set and design the processors themselves. To justify the $30 billion price they really need to increase FCF to 1.5 billion a year. For a relatively mature business I don't see how it is going to happen.

wastedhours2• 10 years ago

Mature in the mobile and current marketplace - as has been mentioned in the thread previously, the gamble they're taking is that ARM is going to dominate IoT. With a (potential) monumental increase in the number of connected devices, as well as updating older gen embedded systems, that's where they're aiming for that >3x growth to come from.

nashashmi• 10 years ago

I once read an article where the CEO of ARM reasoned against raising prices because its partners would then have less healthy businesses. I never forgot that piece of wisdom.

But now with this acquisition, is there any room for such generous mentality?

venomsnake• 10 years ago

It is not generosity. It is knowledge of your own business model.

ARM wants to earn 1penny on every chip sold, but to put chips everywhere. So increasing royalties, but preventing market expansion is bad. Especially with the internet of appliances rapidly approaching.

ma2rten• 10 years ago

Not just that, it also prevents other companies from entering this market. Maybe forward thinking is a better term that generous.

dingo_bat• 10 years ago

I'm curious. Does ARM get royalties even on custom designed chips like apple's? Or only on reference cores?

SixSigma• 10 years ago

That's standard supply chain theory. You will read it in books about the Toyota Way.

pavlov• 10 years ago

Maybe this explains why SoftBank recently chose to sell its controlling stake of Supercell for about $7.3B USD -- they needed the cash for something bigger.

SoftBank had purchased Supercell for about $2B only a few years ago, so it was a genius investment. Will be interesting to see if they can turn ARM into another one of those.

obmelvin• 10 years ago

I did wonder why they would sell their Supercell stake considering they just introduced a new game which is looking to be another cash cow. This certainly does seem to put the sale into some perspective.

hrrsn• 10 years ago

Uhh, what did they just introduce?

rkangel• 10 years ago

If they've just introduced a new game which demonstrates continued earning potential, then now is an excellent time to sell.

tdicola• 10 years ago

I'm kind of surprised Apple didn't swoop in and buy ARM long ago. I guess as others mentioned that might mean all the Apple competitors using ARM chips would flee and leave them with a lot less partners.

lostlogin• 10 years ago

They seem happy to screw their suppliers right down instead and leave the risk to them - the sapphire screens saga being an example.

ausjke• 10 years ago

Isn't he already bankrupt due to the "wrong" acquisition of Sprint? This is hard to believe. I did notice he was preparing cash for something(selling Supercell, and Alibaba shares for cash), I thought those cash are used to cover Sprint's losses. Gosh this is really, really hard to believe.

mrlambchop• 10 years ago

Mixed feelings on this - huge congrats to ARM friends but I feel it's 1 act too short for an exit like this. I'd love to have seen a British owned tech company higher up the Global 2000 before transferring ownership.

chrisseaton3• 10 years ago

Yes I too wish that there was a big British tech company I could work for in the UK (being British myself). Unfortunately I can't imagine ARM ever being competitive as an employer.

When I was applying for internships during my degree a couple of years ago I looked at US companies like Google and Oracle and ARM in the UK. I think ARM paid about a quarter of what Google and Oracle were offering. One quarter. And that's just cash before I included the housing, car costs and massive relocation grant that the US companies included and ARM didn't.

Today Glassdoor tells me that ARM pays interns about half, and graduates about 60%, of what Microsoft does, in the same city (Cambridge) a few miles apart.

But they have good people working for them so it must be enough I guess!

steton• 10 years ago

A decade or so ago, ARM was offering graduates about £25K. I believe they still offer the inflation-adjusted equivalent of that: ~£32K.

Does this mean that Microsoft Cambridge are offering graduates ~£50K? It's interesting that I consider that to be very high for a graduate salary yet, at USD 66K equivalent, it is significantly less than would be available in an area of the USA with a comparable cost of living...

gaius• 10 years ago

What about Imagination?

plainOldText• 10 years ago

Apparently, $32 billion is how much they'll pay for this deal. [1]

[1] http://www.wsj.com/articles/softbank-agrees-to-buy-arm-holdi...

peterburkimsher• 10 years ago

They bought Sprint before. It's costing them an ARM and a leg.

mtgx3• 10 years ago

Finally, a hardware-related acquisition that is more expensive than the Whatsapp acquisition.

unexistance2• 10 years ago

I wonder what SoftBank can add to ARM technologically?

Obviously besides swimming in dollar

elsen• 10 years ago

They took 95% ownership of Aldebaran Robotic a while ago, and it's a huge success in Japan. I'm no expert but isn't that building a vertical?

AFAIR the robots are running on Intel Atom, but well... embedded... ARM... (not saying that's the only reason though)

unexistance2• 10 years ago

huh, that sounds cool, energy-efficient factory robots, sounds like something the Japanese love

ZenoArrow• 10 years ago

Maybe it's just me, but I see this as a foolish move. ARM was better suited to being an independent company due to their licencing model. With the purchase by SoftBank now there's greater incentive for licensees to move away from ARM. I suspect we'll see much more investment in RISC-V as a result of this, which would be a good thing for most of us, but a less good thing for ARM.

kev009• 10 years ago

Foolish for the downstream integrator, maybe even the longevity of the platform, but shrewd for creditors and shareholders.

I'm laughing because integrators flocked from MIPS to ARM, and events could unfold such that they run back to MIPS etc

toyg• 10 years ago

That depends on how Softbank manages the acquisition. If they keep the company separate and just keep cashing in dividends, I don't see the problem. Softbank afaik is also very much focused on the Japanese market only.

Animats• 10 years ago

First sentence: "SoftBank is nearing a deal to acquire ARM Holdings, the British semiconductor company, said two people briefed on the matter who asked not to be named discussing private information."

Editing standards at the Grey Lady have declined.

pritambaral• 10 years ago

I find that sentence grammatically correct. What is it do you think editing has missed?

Disclaimer: I'm not related to the BBC

jjawssd• 10 years ago

SoftBank WiFi access points are the most user unfriendly on the planet. You have to call them to be able to register to get online. And guess what? If you are not a Japanese resident you can't get a Japanese phone number. And even before registering the WiFi craps out 80% of the time within 60 seconds of connecting, no matter where you are in Tokyo. I am extremely disappointed. SoftBank will shake you down for all you are worth.

mtgx3• 10 years ago

This could be great for RISC-V's prospects, especially if Softbank decides to be more partial to which customers it gives the license, or if it increases prices, and so on - basically anything Softbank might do in the future that would piss customers off, could be a win for RISC-V.

Don't expect any major shakeup over the next 3 years though. Even if some customers decided to drop ARM right now, it would still take 3+ years before they come up with a strong RISC-V alternative. First, Android would have to give RISC-V its blessing (support it), too, but Google is a member of the RISC-V foundation, so I assume that's not an impossible task.

jimmytidey• 10 years ago

Apparently Arm's Founder isn't particularly into it:

"ARM is the proudest achievement of my life. The proposed sale to SoftBank is a sad day for me and for technology in Britain."

https://twitter.com/hermannhauser/status/755008815553273858

SoftBank Group Nears Deal to Buy ARM Holdings

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