SoftBank selling Arm to Nvidia for RM168b

The deal will be one of the largest acquisitions globally in 2020 and will propel Nvidia to the forefront of the semiconductor sector

by AFP / pic by BLOOMBERG

TOKYO • Japan’s SoftBank Group Corp said yesterday it is selling British chip designer Arm Ltd to US firm Nvidia Corp for up to US$40 billion (RM168 billion), potentially creating a new giant in the industry.

If approved, the deal will be one of the largest acquisitions anywhere in the world this year, and will propel Nvidia to the forefront of the semiconductor sector.

The announcement also renewed speculation about SoftBank Group’s future, with Bloomberg News reporting it is set to revive talks about going private via a management buyout plan.

The Arm sale is valued at up to US$40 billion and is subject to approval by authorities in several jurisdictions, including Britain, China, the US and the European Union, SoftBank said in a statement.

It hopes the deal will be completed by around March 2022, it added.

SoftBank Group shares soared in early morning trade in Tokyo, rising by almost 10% at one point. They ended the day up 8.95% to ¥6,385 (RM255.40).

Founded in 1990 in the UK, Arm specialises in microprocessors, and dominates the global smartphone market. But its chips are also found in countless sensors, smart devices and cloud services.

Nvidia, well known for graphics cards that are favoured in the video game industry, has seen sales skyrocket during the coronavirus crisis, with gaming a popular pastime in lockdown.

Its products are also increasingly used for artificial intelligence (AI) and in data centres.

SoftBank bought Arm in 2016 for US$32 billion in a deal that left investors cold and saw the conglomerate’s stock plunge sharply.

Analysts at the time said SoftBank had paid too much for the firm and the purchase revived concerns about the Japanese company’s balance sheet.

Amir Anvarzadeh, senior market strategist at Asymmetric Advisors in Singapore, said Arm had been “underperforming”, making the sale more attractive for SoftBank.

But he said the acquisition was “going to raise some eyebrows” in the semiconductor industry, because so many of Nvidia’s competitors work with Arm’s designs.

“They will need some guarantees…otherwise Arm may lose business or face lawsuits,” he said.

Nvidia said in a statement that under the deal it will pay SoftBank US$21.5 billion in common stock and US$12 billion in case, US$2 billion of which will be payable at signing.

SoftBank may receive up to another US$5 billion in cash or stock, dependent on Arm’s performance.

And Nvidia will also issue US$1.5 billion in equity to Arm employees, for a deal worth a total of up to US$40 billion.

SoftBank said it felt Arm would perform better in combination with Nvidia and the sale would “contribute to an increase in our company’s value for shareholders”.

It said the deal would give it a combined total of 6.7%-8.1% in Nvidia’s outstanding shares, but insisted that would not make the US firm a subsidiary or affiliate.

“Our belief in the power of Arm’s technology and its potential remains unchanged, and we, as a strategic major shareholder in Nvidia, will be committed to Arm’s long-term success,” SoftBank added.

Nvidia said the acquisition would help “create the premier computing company for the age of AI”.

It said Arm would retain its name and remain in Cambridge in the UK, where a new global centre for excellence in AI will be set up.

The sale, which comes as SoftBank engages in a massive push to boost its cash reserves, renewed speculation about the firm’s future plans.

Bloomberg News, citing unnamed people familiar with the matter, said senior SoftBank executives planned to revisit a management buyout, which had previously met with internal opposition.

The report said the discussions were at an early stage and might not result in the firm going private, but reflected pressure from those who feel SoftBank would be subject to less scrutiny if it were not publicly listed.

But Anvarzadeh was sceptical, noting that SoftBank has been buying back stock, raising its share price, which would be counter-productive if it was planning a management buyout.

It would be “kind of a waste of money. You’re selling your best assets and keep buying back shares”, he told AFP. — AFP