22 July 2016

Softbank to acquire Arm in mega deal post-Brexit vote

This week, Japan’s telecommunication provider Softbank signed on the dotted line to purchase Arm Holdings, a computer microprocessors designer. The offer of GBP 17 per share represents a 43 per cent premium over Arm’s closing price of GBP 12 on 15th July, the last trading day prior to the deal being announced. The acquisition, which will be carried out via a scheme of arrangement, can be valued at GBP 24,346 million, making it Softbank’s largest ever, according to Zephyr, the M&A database published by Bureau van Dijk.

In order to fund part of the acquisition, Softbank will obtain debt financing from Mizuho Bank. Notable shareholders of Arm include Baillie Gifford, Blackrock Institutional Trust Company and Thornburg Investment Management. While Arm’s board has given the go-ahead, regulatory and shareholder approvals are required before completion, which is expected to take place by September this year.

Arm’s microprocessors currently power about 95 per cent of the world’s smart phones. According to the Wall Street Journal (WSJ), Arm has also recently aimed to become a leading designer of chips for the Internet of Things (the network connecting everyday items, such as smart refrigerators, mobile phones and vehicles). Softbank’s chief executive Masayoshi Son reckons Arm will be a strategic fit, which will allow the group to capitalise on the growth of the Internet of Things.

Softbank’s shareholders, though, disagreed with Son. The company’s stock price fell 10 per cent on 19th July following the announcement of the takeover. “It’s easy to look at where your pieces are now and place the next one nearby.” argued Son, who maintained that the deal will allow him to prepare for the long term, as reported by Bloomberg.

Two months ago, Arm acquired London-based Apical for USD 350 million. The start-up develops imaging technology which enables video cameras to function more intelligently. This would, for example, allow cameras to distinguish between humans and animals, according to the WSJ.

Softbank’s mega deal came despite market jitters following the UK’s vote to leave the European Union (EU). The UK’s new Prime Minister Theresa May is in the midst of working out the country’s negotiating position with the EU before officially triggering a two-year withdrawal process which will determine the future relationship of both parties post-Brexit. Amid the uncertain economic outlook, the headline grabbing deal serves as a “big vote of confidence” in the UK’s business, according to Chancellor of the Exchequer Philip Hammond, who was also pleased with Softbank’s commitment to double the size of Arm’s local workforce in the next five years.

The low Pound following the Brexit vote might have given Softbank a bargain on the deal.  It has also attracted other foreign bargain hunters, such as AMC Entertainment. The Dalian Wanda-owned company this month agreed to purchase UK cinema operator Odeon and UCI for around GBP 921 million. AMC’s chief executive Adam Aron rationalised that while there are some uncertainties related to Brexit, the exchange rate is highly favourable to his company.

Mizuho Securities and Robey Warshaw are among the advisors assisting Softbank on the Arm deal, while those representing the target include Goldman Sachs, Lazard and UBS.

© Zephyr