SoftBank announced a deal to acquire ARM which values the UK tech player at around £24.3 billion ($32 billion), in a move the Japanese company said will enable it to capture the “IoT opportunity”.
In a statement, ARM also said that SoftBank has “provided assurances to at least double the employee headcount in the UK and to increase the headcount outside the UK” in the next five years. It also intends to maintain the ARM organisation, senior management and partnership-based business model.
SoftBank’s offer is at a premium of 43 per cent to the share closing price on 15 July – the last day before the announcement – and 69 per cent higher than the weighted average closing price in the three months prior. It is also 41 per cent higher than ARM’s all time high closing share price.
“SoftBank intends to invest in ARM, support its management team, accelerate its strategy and allow it to fully realise its potential beyond what is possible as a publically listed company,” said Masayoshi Son, chairman and CEO of SoftBank.
“This is one of the most important acquisitions we have ever made, and I expect ARM to be a key pillar of SoftBank’s growth strategy going forward,” he continued.
The deal comes at an interesting time for SoftBank. There has been shareholder disquiet around some of its previous deals (made under the purview of Nikesh Arora, its now-departed president and COO), and the company has also made several disposals, including stakes (or partial holdings) in Supercell, GungHo Online Entertainment and Alibaba.
While observers had hoped the proceeds would be used to pay-down debt, Son is still clearly taking a long-term view of SoftBank, particularly as he has postponed plans to step down.
But the company is still faced with its biggest challenge, which is turning-around US operator Sprint. While Sprint has a track record of accentuating the positives, and there are some positives to be seen, it is not out of the woods, and the US telecoms market is not getting any less competitive.
The Wall Street Journal noted that while ARM will see SoftBank again increasing its debt, at least the UK chip technology player generates cash.
For ARM, SoftBank’s deal indicates it sees significant value in the business. The offer price is 20 times estimated 2016 revenue (and 24 times its 2015 figures), and while the mobile market has plateaued somewhat (and ARM’s position is safe), it has been investing to capitalise on IoT growth.
“ARM is an outstanding company with an exceptional track record of growth. The Board believes that by accessing all the resources that SoftBank has to offer, ARM will be able to further accelerate the use of ARM-based technology wherever computing happens,” said Stuart Chambers, chairman of ARM.
ARM said the deal is not subject to any anti-trust or regulatory concerns.
SoftBank will pay for the buy with its own cash, and a loan from Mizuho Bank.