SoftBank to buy UK chip designer ARM in $32 bln cash deal

SoftBank Group Corp agrees to buy UK chip designer ARM Holdings PLC in a 24.3 billion pound ($32.2 billion) deal.

(ARM HOLDINGS) – SoftBank Group Corp has agreed to buy UK chip designer ARM Holdings PLC in a 24.3 billion pound ($32.2 billion) deal, the two companies said on Monday (July 18), in an ambitious bet on mobile internet that will transform the Japanese tech group.

ARM, the most valuable tech company listed in London by market value, is a major presence in mobile processing, with its processor and graphics technology used by Samsung, Huawei, Apple in their in-house designed microchips.

The Cambridge-based group also stands to be central to the tech industry’s shift to the ‘internet of things’ – a network of devices, vehicles and building sensors that collect and exchange data – a focus for SoftBank founder Masayoshi Son.

Monday’s deal, Softbank’s largest to date, marks a departure for the Japanese group, whose tech and telecom portfolio ranges from U.S. carrier Sprint to a stake in Chinese e-commerce giant Alibaba – but does not yet include a major presence in the semiconductor industry.

Under the all-cash, agreed offer, SoftBank will pay 17 pounds for every ARM share – a premium of more than 40 percent to Friday’s close, in line with earlier news reports.

NAB’s Nick Parsons said the strength of the Japanese yen has made overseas acquisitions cheaper.

“If you look at the sterling yen exchange rate you have only got to go back four or five weeks to see that was trading at 160. Well at one point last week we were down to 128, which is the best part of 20 percent exchange rate movement. So when you look at a company like ARM and you can see that they paid a 45 percent premium to Friday’s closing price in yen terms that was substantially less than it would have cost just a month ago,” Parsons said.

The acquisition is also one of Japan’s largest to date, and is part of a trend of Japanese companies seeking growth abroad to compensate for a stagnant domestic economy. It would outrank even SoftBank’s own $22 billion acquisition of a controlling stake in wireless operator Sprint in 2013 – a deal that left the Japanese group with hefty debts as the U.S. carrier’s losses mounted.

Softbank has raised nearly 2 trillion yen ($19 billion) in cash over the last few months through asset disposals, according to Son – including the sale of shares in China’s Alibaba, unusual for a group that has rarely exited investments.

But analysts had expected it to use the cash to reduce debt or give shareholders a windfall by buying back its own shares.

Monday’s deal comes less than a month after Son, known as “Masa”, scrapped his plans to retire, effectively pushing out his heir apparent, former Google executive Nikesh Arora.

Son said then that he wanted to stay on to develop Sprint but also to complete the transformation of SoftBank into a tech investment powerhouse. He has focused on what he calls the next ‘paradigm shift’ in technology, which includes artificial intelligence and the internet of things – both increasingly important for ARM as it weathers a smartphone slowdown.

Earlier this year Cambridge-based ARM bought UK imaging specialist Apical, which specialises in technology to allow computers to analyse images – replicating human vision using software.

A deal would also come just weeks after Britain voted to leave the European Union, a decision that has battered sterling and bolstered the yen.

British Finance Minister Philip Hammond endorsed the deal on Monday.

“ARM is a great success story and the fact that a Japanese company just three weeks after the referendum decision is prepared to make this kind of commitment to the UK and commit to grow that business here is the UK is a resounding endorsement of the resilience of the British economy and the attractiveness of Britain as place for international companies to do business,” he said.

Though it has warned on the staffing impact of Brexit, ARM Holdings’ revenues are largely in dollars, and it has a diverse portfolio of technologies it licenses. Its shares have actually climbed almost 17 percent since the vote.

Under the offer on Monday, SoftBank said it was committed to keeping top managers, ARM’s headquarters and to at least double the employee headcount in Britain.