Japan’s SoftBank to buy English ARM Holdings for £24.3b
On 18 July 2016, Japanese telecommunications company SoftBank offered ARM £23.4b in order to acquire the company with the promise to double its UK workforce. This will be the largest acquisition for SoftBank since the $22b (£17b) it paid for a controlling stake in US telecommunications company Sprint Corporation in 2013. The deal comes in an uncertain time where Britain is contemplating exit from the EU, and it will offer no relief to a wounded sterling.
SoftBank Group Corp. is a Japanese multinational telecommunications and Internet corporation established in 1981 in Tokyo. It is considered the 62nd largest company in the world according to Forbes Global 2000 and is the third largest company in Japan. In 2013, SoftBank purchased the American Sprint Corporation for $22.2b for a 78% ownership. But the deal was Masayoshi Son’s biggest setback with SoftBank’s shares dropping very low and his fortune shrinking by $3.2 billion during the last year. Japan’s second richest man, Son has an estimated net worth of $14.9b.
ARM Holdings PLC is Cambridge-based and Britain’s most successful high-tech company. It designs primarily Acorn RISC Machine processors (CPUs), programming tools, systems and platforms, and system-on-a-chip (SoC) infrastructure and software. It is particularly the dominant company in the field of processors for mobile phones such as smartphones and tablets. From Nokia phones, to iPhone and Apple Watch most mobile devices have an ARM-based chip inside them, which the company designs and licenses it to other companies like Qualcomm, Samsung and Apple. But as the market is oversaturated with the availability of smartphones, ARM is opening towards other markets recognizing the need to expand beyond mobiles and into other platforms in the Internet of Things. Last year it bought Internet of Things security firm Sansa and Offspark, Bluetooth companies Wicentric and Sunrise and Carbon Design Systems. It is also developing its own operating system for the Internet of Things “mbed”. ARM’s expansion beyond the current limits of PC and mobile markets fits well with SoftBank’s strategy to venture into the Internet of Things.
SoftBank will pay £17 a share for ARM – a premium of 43.0 percent on the closing price of 1,189 pence per ARM share on Friday, July 15, 2016, and 41% more than ARM’s all-time high closing share price.
Stuart Chambers, the chairman of ARM said: “This is a compelling offer for ARM shareholders, which secures the delivery of future value today and in cash. The board of ARM is reassured that ARM will remain a very significant UK business and will continue to play a key role in the development of new technology.”
Masayoshi Son, Chairman and CEO of SoftBank said that: “We have long admired ARM as a world renowned and highly respected technology company that is by some distance the market-leader in its field. ARM will be an excellent strategic fit within the SoftBank group as we invest to capture the very significant opportunities provided by the ‘Internet of Things’”. Son wants to turn SoftBank into a technological investment powerhouse by shifting focus towards Artificial Intelligence (AI) and the Internet of Things (IoT)—the network of devices from vehicles to buildings and other physical items which are implanted with electronics, software and network connectivity that allows them to amass and exchange data. Examples of everyday IoT devices targeting consumers are smart homes, connected cars and wearable technology (hearing aids, calculator watch, Bluetooth connected and Internet connected clothing).
For Son, the investment will give SoftBank a competitive advantage provided by Silicon Fen’s scientific and technological talent and will boost SoftBank’s growth strategy.
The chancellor, Philip Hammond, praised the deal and said: “Just three weeks after the referendum decision, it shows that Britain has lost none of its allure to international investors. Britain is open for business – and open to foreign investment.” For him, Britain “remains one of the most attractive destinations globally for investors to create jobs and wealth. And as ARM’s founders will testify, this is the greatest place in the world to start and grow a technology business.”
Britain’s Silicon Fen and Silicon Glen
Also known as Cambridge Cluster, Silicon Fen, like California’s Silicon Valley, is its English equivalent with around a 1500 high-tech businesses focusing on software and biotechnology and employing over 50,000 people. Situated in the southern tip of Eastern England’s Fenland, the Cambridge collection of companies has boosted the town’s reputation and employment market. In February 2006 it was reported that approximately 250 active start-ups linked to the University of Cambridge, were valued at $6b. Companies such as ARM, Autonomy Corporation, CSR and AVEVA are multinationals, but the majority remain small. ARM and the University of Cambridge have been crucial to the area’s development into a high-tech industry.
Silicon Glen is Scotland’s high-tech sector, covering Fife, Glasgow and the Stirling areas. It grew out of the decay of traditional industries like mining and shipbuilding in 1984 and supplies equipment and services to the semiconductor and related industries.
In 2000 Scotland had 48,000 people employed in the industry and, in 2005, 1,000 companies in electronics employed 25,000 people. Scottish factories made three out of every 10 personal computers built in Europe, while two-thirds of Europe's cash machines were made in Dundee. In 2002, when 28% of Scotland’s exports were electronics, the value of computer equipment exports was £5.6b. Scottish manufacturing of electronics suffered a sharp decline though and by 2014, Scottish exports dropped to 4%, valued at £1.1b.
The future of UK's high-tech sector
Both Silicon Fen and Silicon Glen, despite their innovative technology and quality high-tech products, suffer from lack of investments and financial support from government organisations. Some of these companies also take pride in remaining a close-knit community developing sophisticated technology, without turning into their vampiric money-making counterpart in Silicon Valley.
According to the Independent, “The Square Mile is often seen as a source of strength to the UK, but it can also serve as an impediment. The short-term horizon of its investors means far too many quality companies such as Arm are sold before they have a chance to flower, and lately they’ve been replaced by unlovely natural resources giants such as Glencore. Moreover, it has singularly failed to get funding into the pockets of those who might be able to use it to produce other Arms. Until things like this change, the Fens will remain windswept and lonely while California’s Silicon Valley is bathed in sunlight.”
With Brexit the UK investment in innovation becomes more challenging. For example, within 24 hours of the referendum result, many UK tech startups lost their VC partners since the investments were conditional upon the UK remaining in the EU. With Arm passing into foreign hands, many tech leaders issued warnings about the loss of a big British company. In addition, it seems questionable that a Japanese company wants to buy British ARM before Theresa May’s government “puts in place a national interest test for foreign takeovers”, said Nils Pratley.
Vince Cable, the former business secretary, said: “It’s worrying that we are simply unable to grow large tech companies in Britain. We are never going to grow a Facebook or a Google. Every time these businesses get to a certain size they get snapped up.”
And a partner at Amadeus Capital, Hermann Hauser added that: “SoftBank is a reasonable acquirer, but this is sadly one of the unintended consequences of Brexit. The fall in sterling has made this very cheap, and while I suspect they were considering it for a long time, they have acted now because the opportunity is there.” “It’s a sad loss of independence. Britain is becoming a smaller and smaller player in the tech sector. But on what grounds would you intervene? Internationally it’s not sustainable.”
Richard Holway, chairman of research company TechMarketView, lamented the loss of Arm to a “foreign predator” by saying that “In the UK, we’ve built hardware companies, software companies, IT companies, and they’ve all eventually gone out to a French, US or Japanese buyer”. Holway stressed that Arm’s takeover will make other British tech companies “very vulnerable” especially after Brexit and during a time when sterling has tumbled against the dollar and the yen.