SoftBank Group Corp is reportedly in talks to acquire the remaining 25% stake in Arm Ltd from Vision Fund 1 (VF1), an investment fund it raised in 2017. This potential deal could deliver a significant win for investors who have been waiting for strong returns on their investment. The discussions come as SoftBank prepares to list the chip designer on Nasdaq next month at a valuation of $60 billion to $70 billion.
If the negotiations lead to a deal, SoftBank would provide a major windfall to VF1 investors, including Saudi Arabia’s Public Investment Fund and Abu Dhabi‘s Mubadala. This would be a welcome outcome for these investors who have sustained losses due to SoftBank’s unsuccessful bets on companies like WeWork Inc and Didi Global.
Alternatively, if VF1 were to sell its Arm shares in the stock market after the IPO, it would likely take one to two years and carry more risk for the fund’s investors if Arm’s shares were to decline in value.
VF1 recently returned to profitability in the latest quarter, thanks to the growing excitement around artificial intelligence and the increased value of some of the startups in which it has invested. However, its previous losses prevented SoftBank from securing outside investors for Vision Fund 2 (VF2).
By delivering a significant windfall to VF1 investors, SoftBank could improve its chances of attracting capital from these investors again in the future, as it has been considering raising a third Vision Fund.
SoftBank’s CEO, Masayoshi Son, has recused himself from VF1’s deliberations on the matter in order to ensure an independent decision-making process that is in the best interest of the fund’s investors.
The specific valuation for Arm that is being discussed in the negotiations has not been disclosed, and there is a possibility that no agreement will be reached.
If a deal is reached, SoftBank would reduce the number of Arm shares it sells in the IPO and potentially retain a stake of between 85% and 90%.
Arm’s upcoming IPO would not only benefit VF1 investors but also SoftBank, which has reported losses in recent quarters due to declines in the valuations of its major holdings.
In preparation for the IPO, SoftBank has been in talks with several technology companies, including Amazon.com Inc, about potentially becoming cornerstone investors in Arm.
It is worth noting that Arm’s business has fared better than the overall chip industry due to its licensing model, which allows it to generate revenue through royalty payments. However, recent weakening demand for smartphones has had an impact on Arm’s earnings.
In conclusion, the potential acquisition of Arm by SoftBank from VF1 could deliver a much-needed win for investors and help boost SoftBank’s chances of raising capital in the future. The discussions are ongoing, and it remains to be seen whether an agreement will be reached.
