SoftBank is reportedly in discussions to acquire the remaining 25% stake in Arm, a leading chip designer. The investment is part of Vision Fund 1 (VF1), a US$100 billion investment fund raised by SoftBank in 2017. If the talks lead to a deal, it would be a significant win for investors who have been waiting for strong returns.
The negotiations come as SoftBank prepares to list Arm on Nasdaq next month, with a valuation range of US$60 billion to US$70 billion. Acquiring the remaining stake from VF1 would result in an immediate windfall for investors, including Saudi Arabia’s Public Investment Fund and Abu Dhabi‘s Mubadala, who experienced losses due to SoftBank’s unsuccessful bets on startups like WeWork and Didi Global.
Selling Arm shares in the stock market after the IPO would typically take one to two years and pose more risk for VF1 investors, as the shares’ value could potentially drop. By delivering a major windfall, SoftBank could improve its chances of attracting capital from VF1 investors in the future, though the company currently has no plans to do so.
SoftBank CEO Masayoshi Son has hired investment bank Raine Group to advise on the negotiations and has recused himself from VF1’s deliberations to ensure an independent decision in the interest of the fund’s investors.
The exact valuation for the Arm transaction is still under discussion, and there is a possibility that no agreement will be reached. If a deal is reached, SoftBank would likely retain a stake of between 85% and 90% after the IPO. SoftBank, VF1, and Arm declined to comment on the matter.
For SoftBank, Arm’s IPO would be a positive development, as the company reported its third consecutive quarterly loss, primarily due to declines in the valuations of major holdings like Alibaba Group, Deutsche Telekom, and T-Mobile US.
Arm’s IPO plans coincide with a recovery in the US IPO market, with companies like Instacart and Klaviyo preparing to list in New York. Arm had previously rejected the British government’s campaign to list its shares in London and decided to pursue a flotation on a US exchange instead.
Arm’s business model is based on licensing designs rather than manufacturing processing systems itself, which has allowed it to fare better than the broader chip industry. The company’s technology is widely used in smartphones and data centers, generating lucrative royalty payments. However, recent weakening demand for smartphones has impacted Arm’s earnings.
In summary, SoftBank’s talks to acquire the remaining stake in Arm from VF1 could potentially deliver a win for investors ahead of Arm’s IPO. The negotiations are ongoing, and if a deal is inked, SoftBank would reduce the number of shares sold in the IPO and retain a significant stake in Arm. The outcome of the discussions remains uncertain, but both SoftBank and Arm are hopeful for a positive outcome as they navigate through the IPO process.
