Japanese telecoms business SoftBank has made a lightning-quick deal to buy British smartphone chip company ARM Holdings for $32 billion in a bid to become a major player in the ‘internet of things’ technology market.
Negotiations by SoftBank were nothing if not speedy. Following a short round of talks, SoftBank agreed to pay $22 in cash per share – a substantial premium on Arm’s previous closing price. Masayoshi Son, larger-than-life CEO of the Japanese group, approached ARM bosses Simon Segars and Stuart Chambers informally for discussions, before wrapping up the final offer within just two weeks.
Buying market share
ARM’s innovative processor is an essential component in a staggering 95% of smartphones, trouncing Intel whose own chip architecture is ill-suited to mobile devices. The technology was originally developed in the 1980s as a result of a collaboration between Apple and Acorn, and was used in early hand-held devices including Apple’s Newton.
Today, the Cambridge-based company has a highly profitable intellectual property model, licensing the architecture to manufacturers such as Apple and Samsung in return for a royalty payment. ARM has also been shielded from the Brexit fallout more than many other British companies, partly by its specialist technology niche – and the fact that it earns in US dollars.
Despite its technical dominance, however, ARM is still a small fry in the global chip industry, making its purchase price around 70 times that of its net income for the whole of last year. Mr Son is particularly interested in the application of the chip architecture to the internet of things – the connectivity of domestic devices.
‘The paradigm shift is the opportunity,’ he said, about the potential of the internet of things. ‘It will be a big opportunity for all of mankind and products used.’
Getting the government on side
Mr Son was also quick to reassure new prime minister Theresa May and chancellor of the exchequer Philip Hammond about his intentions, offering assurances with regard to maintaining ARM’s headquarters and increasing UK staffing as well as overseas positions.
The acquisition has been seen by some as a vote of confidence in post-Brexit Britain but it’s not been a popular move with everyone, including those wary of the rise of foreign takeovers of British assets. With the pound dipping against the yen, ARM will have proved to be a more attractive target than before the referendum.
ARM founder Hermann Hauser told the Financial Times that SoftBank’s takeover of the company was one of the ‘sad and unintended consequences’ of Brexit. He went on to say: ‘The future of ARM could have been determined by the UK management team. Now it will be determined in Japan.’