SoftBank Group Corp is reportedly in discussions to acquire the remaining 25% stake in Arm Ltd from Vision Fund 1 (VF1), a US$100 billion investment fund it raised in 2017. This potential deal could bring strong returns for investors who have been waiting for a payoff.
Currently, SoftBank owns 75% of Arm and is preparing to list the chip designer on Nasdaq next month at a valuation of US$60 billion to US$70 billion. By acquiring the remaining stake from VF1, SoftBank would deliver an immediate windfall to VF1 investors, including Saudi Arabia’s Public Investment Fund and Abu Dhabi‘s Mubadala. These investors have endured losses from SoftBank’s unsuccessful bets on startups like WeWork and Didi Global.
Selling VF1’s Arm shares in the stock market following the initial public offering (IPO) could take up to two years, which would be riskier for the fund’s investors as the value of Arm’s shares could potentially drop. This is why a deal with SoftBank would provide a quicker and more lucrative outcome.
VF1 returned to profitability in the latest quarter due to the increasing value of some of the startups it invested in, particularly in the artificial intelligence sector. SoftBank’s ability to deliver a significant windfall to VF1 investors could improve its chances of attracting their capital again in the future, although there are currently no concrete plans to do so.
In order to handle the negotiations, SoftBank’s CEO, Masayoshi Son, has enlisted the help of investment bank Raine Group. Son has recused himself from VF1’s decision-making process to ensure an independent decision that benefits VF1 investors. The discussions are being handled by VF1’s investment committee and SoftBank’s investment advisory board, with representatives from fund investors involved.
The exact valuation for the Arm transaction is still unknown, and it’s uncertain whether an agreement will be reached. If a deal does occur, SoftBank would retain a stake of approximately 85%-90% in Arm, ensuring that fewer shares are sold during the IPO.
SoftBank has also been in talks with various technology companies, including Amazon.com, about bringing them onboard as cornerstone investors in Arm before its IPO.
Arm’s IPO would not only benefit VF1 investors but also help SoftBank recover from its recent quarterly losses. SoftBank has been affected by declining valuations of major holdings such as Alibaba Group, Deutsche Telekom, and T-Mobile US.
Arm’s decision to go public comes as the US IPO market shows signs of recovery, with major companies like Instacart and Klaviyo Inc preparing to list. Earlier this year, Arm rejected the British government’s campaign to list shares in London and opted for a US exchange instead.
Although Arm’s business has fared better than the broader chip industry due to its licensing model, recent weakening demand for smartphones has impacted its earnings. However, Arm’s technology remains prevalent in smartphones and data centers, generating significant royalty payments.
To emphasize Arm’s significance within SoftBank’s investment portfolio, Arm’s CEO, Rene Haas, was asked to join SoftBank’s board of directors in April.
In summary, SoftBank’s potential acquisition of the remaining stake in Arm from VF1 could lead to substantial returns for investors. The discussions are ongoing, and if a deal is reached, it could benefit both SoftBank and VF1 by providing an immediate windfall and reducing the number of shares sold during the IPO. However, the exact details of the transaction and the outcome of the negotiations remain uncertain.
