SoftBank pitches IPO for Arm after lucrative deal falls through

Competition concerns force the Japanese technology giant to scrap the sale of its chip design business Arm that could have netted $112bn, but CEO Masayoshi Son has a Plan B.

SoftBank is considering floating its chip design business ARM after competition concerns scuttled its mega deal, which could have brought $112bn to the Japenese tech giant. Picture: Kazuhiro Nogi/AFP

After a deal that could have been worth $US80bn ($A112bn) to his company fell apart, SoftBank Group chief executive Masayoshi Son is playing salesman for Plan B – an initial public offering of chip designer Arm.

Mr Son sounded as if he were on a roadshow for investors at a news conference in Tokyo on Tuesday. He said Arm is entering a “golden period” of high demand for the chips it helps create in smartphones, electric vehicles and computer-server farms operated by the likes of Amazon.com Inc.

The pitch came hours after the Japanese investment and technology conglomerate said it was abandoning plans to sell Arm to Nvidia – in what would have been the largest semiconductor deal on record – because antitrust concerns stood in the way.

Mr Son said he was surprised to see the backlash not only from US regulators who sued to block the deal in December but also big tech companies that rely on Arm’s chip designs.

“We saw strong opposition because Arm is one of the most important and essential companies that most companies in the IT industry or in Silicon Valley rely on, either directly or indirectly,” he said.

SoftBank paid $32 billion when it acquired the U.K.-based chip business in 2016. Mr Son said the sale to Nvidia, under which SoftBank would have received both cash and Nvidia shares, could have been worth $80 billion because of a rise in Nvidia’s share price.

SoftBank now plans to pursue a public listing of Arm by March 2023. Arm shares will most likely be listed on the tech-heavy Nasdaq Stock Market in the US because many of Arm’s clients are based in Silicon Valley, Mr Son said.

He said SoftBank didn’t intend to keep Arm for itself because he wanted outside investors in the SoftBank-led Vision Fund, which owns a quarter of Arm, to be able to cash in through an IPO and because he wanted to give stock options as incentives to Arm employees.

Uncertainties linger around an Arm IPO, including whether the volatile semiconductor business will stay hot through this year.

Tech shares have fallen recently because of tightening by the Federal Reserve. Fumio Matsumoto, chief strategist at Okasan Securities, said that made the timing for a big IPO less than ideal, and he also observed that a strategic buyer in the chip industry might pay more for Arm because of the potential synergy effects.

Still, Mr Matsumoto said the downturn in Silicon Valley also offered opportunities for Mr Son, and it made sense to raise cash for his war chest from an Arm IPO. “Because technology share prices have gone through a sharp correction over the past year, we are seeing a good cycle to consider preparing” for new investments, Mr Matsumoto said.

After a rough patch a few years ago, Arm is on track for $US2.5bn in revenue this fiscal year, which ends in March, up from $US1.98bn the previous year, SoftBank said. Arm’s operating profit, according to one type of calculation used by SoftBank, more than doubled over the past two years to a projected $US900m this fiscal year.

An array of consumer electronics companies as well as semiconductor companies, including Apple, Samsung Electronics and Qualcomm, use Arm’s designs in at least some of their chips. The designs are known for their low power consumption, making them nearly ubiquitous in mobile devices.

The collapse of the Arm deal is just one of the challenges Mr Son is tackling in his globe-spanning investment portfolio. He said “we are in pain” over China’s crackdown on its big tech companies, which hit SoftBank investments including its most valuable one, e-commerce giant Alibaba Group Holding.

The past two years have seen some of the wildest swings in the four decades since Mr Son started SoftBank. The pandemic, initially seen as a blow, soon emerged as a boon for many technology businesses including those in which SoftBank has invested. SoftBank shares surged, only to fall by half from their recent peak when the China troubles hit and the Arm deal ran aground.

SoftBank’s net asset value, Mr Son’s preferred measure of the company’s finances, fell by Yen1.6 trillion, equivalent to about $US14b, in the October-December quarter to Yen19.3 trillion. That is a fall of 30 per cent from the peak in September 2020 and the lowest level since 2017.

Mr Son blamed the sharp fall in Alibaba shares. The Chinese company, which once made up the majority of SoftBank’s net assets, now accounts for less than a quarter of the total.

SoftBank said it unloaded a small number of Alibaba shares to settle contracts with its lenders, but Mr Son said SoftBank’s stake in the Chinese company remained close to a quarter.

Mr Son, who turns 65 this year, has lost a number of top lieutenants in recent years, including chief operating officer Marcelo Claure, who stepped down in January after a pay dispute. Mr Son said that while he was grooming successors, he didn’t intend to step down soon.

“If I stop, I’d become an old grandpa very quickly,” he said. He boasted that when he went bowling recently, he topped 200 points in two different rounds — a fine score for an amateur. “I thought, ‘Hey, I’m still pretty young,’ ” he said.

-Sam Schechner in Paris contributed to this article.

The Wall Street Journal