Softbank To Buy ARM For $32.34B

By Ed Sperling & Ann Steffora Mutschler

Japan’s Softbank will acquire ARM for $32.34 billion, according to an agreement made public this morning. The deal has the backing of ARM’s board of directors, which unanimously will recommend ARM shareholders approve it, according to a company statement.

Under the terms of the deal, Softbank will at least double employee headcount in the United Kingdom and increase the headcount outside of the U.K. over the next five years. ARM currently has 4,064 employees, according to papers filed as part of the deal. Softbank also said it will keep in place ARM’s current senior management team and maintain ARM’s headquarters in Cambridge, England.

ARM noted that the deal is not subject to antitrust or regulatory conditions, but it does require approval of at least 75% of voting shareholders.

“ARM is an amazing business, and I’m incredibly proud of everything we’ve achieved in the last 25 years,” said ARM CEO Simon Segars. “I’ve been with the company from the start and seen it grow, and I’m blown away by what we’ve achieved. And I think we’ve got a really exciting future ahead of us. Now, we weren’t out to sell the company because we believe our standalone prospects were really, really compelling. So when Softbank approached us with what was a really interesting and intriguing proposition, it was something we had to look at because of our respect for Softbank. Now, anyone looking to acquire ARM really does have to satisfy two criteria—they have to provide a price that’s going to be attractive and compelling for our shareholders, and they have to offer a future that is more exciting than we could achieve on our own. And the Softbank offer, in totality, achieves those objectives. At 17 pounds a share, the board believes that this really fairly values the company, and that our shareholders will find this a valuable offer. And in terms of the future, ARM and Softbank share a vision of the way technology is going to change people’s lives, the way technology is going to enable communication, and collaboration around the world. And with Softbank’s backing, with the level of investment that they can make into this business, we believe we will be able to achieve more than we could standing on our own. And so together, this deal is a very, very interesting and fascinating offer to enable the next chapter of growth for ARM.”

The deal, provided it goes through—something that is highly likely, given the fact that ARM and Softbank are not in the same market—would move Japan squarely back into the semiconductor business. The country has been investing heavily in semiconductor technology over the past few years, particularly in nanotechnology research and EDA tools. According to the most recent ESD Alliance numbers, sales of EDA and IP in Japan jumped 12% in Q1, after several years in the negative column and even longer lackluster growth. Japan’s equipment investments likewise were in the double digits in 2013 and 2014, as the country’s tech industry invested in advanced packaging and equipment for power semiconductors.

“When I think about the investment and the commitment that’s going to be required to develop the future technologies that we are talking about — things like the Internet of Things—things like fully autonomous cars — these are technologies that will require long-term investment, and not an iterative on what we have today. They’re going to require invention, they’re going to require development, they’re going to require the bringing together of different partners in a very diverse ecosystem. That is a non-trivial exercise. It’s one that will take time, and it’s one that will take investment. And in Softbank, they share our view on where this technology can go, and they share our view on how long this will take, and the level of investment that will be required. And so I think together, we will deliver more,” Segars went on to explain.

But the deal does raise some interesting questions for the semiconductor industry as a whole. To begin with, it is not clear how comfortable chipmakers and systems companies will be in dealing with a Japanese telecommunications and Internet company, particularly companies in China and South Korea. There also is a question whether that could pry open the door for competitors, including startups and universities pushing open-source alternatives.

Segars, however, sees it as business as usual. “ARM’s culture within the company is very, very strong. It’s all about working together, it’s about partnership, it’s about creating the best technology and innovating — none of that is going to change. Crucial to the way that we’ve grown the business over the last 25 years is partnership. It’s not just working inside ARM; it’s working with the licensees of our technology; it’s working with an incredibly broad ecosystem to bring the technology to market in the most efficient way. None of that is going to change. Softbank also has a view on ecosystems, and the value of ecosystems, and so there is a great alignment between the way we work, and the way they think about the world. So nothing will change in our culture, nothing will change in our business model.”

At this point, ARM’s processor IP is in more than 95% of all smart phones made today, and more than 30% of all chip with processors sold worldwide in 2015, according to a statement by ARM. The company also is making a huge play in the IoT, as well as in data centers, where its processor cores are being utilized for lower-power and more flexible alternatives.

Softbank, started in 1981, operates a number of businesses, including SoftBank Telecom, Sprint and Yahoo! Japan. It also has investments in robotics and clean energy. The company has 63,000 employees, and for fiscal year 2016, ended March 31, it reported revenues of $200 billion and earnings of $9.82 billion before interest and tax.

In a statement, SoftBank chairman and CEO Masayoshi Son said that “ARM will be an excellent strategic fit within the SoftBank group as we invest to capture the very significant opportunities provided by the “Internet of Things.” He added, “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 publicly listed company. It is also intended that ARM will remain an independent business within SoftBank, and continue to be headquartered in Cambridge, U.K. 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.”

With concerns remaining about Brexit, Segars stressed, “This is a great deal for the U.K., and a great positive affirmation in what the U.K. can do in the world stage of technology. We have over 1,600 employees in the U.K., and over the next five years that’s going to double. I think that’s a great deal.”