£24 billion deal for British firm
ARM acquisition reopens debate over foreign takeovers
Japanese telecoms group Softbank unveiled the recommended offer but walked into a storm of controversy as the deal re-awakened memories of the unpopular sale of Cadbury’s and near sale of AstraZeneca.
Senior politicians welcomed the deal, though there was criticism from industry among those who felt Britain was too easily surrendering its technology to foreign predators buying up leading edge technology.
Chancellor Philip Hammond welcomed the new investment as evidence that Britain could still attract investment three weeks after the Brexit vote.
But Hermann Hauser, the firm’s founder, described the forfeiture of another world-beating company and technology as a “sad day”.
Softbank said it was buying the Cambridge-based company to develop the next phase of technology – the Internet of Things – which would embrace many devices, not just smartphones. It would retain the Cambridge headquarters of the company and invest in it.
Chairman and chief executive of Softbank Masayoshi Son denied that the deal had been an opportunistic swoop enabled by the falling pound. Instead, his firm will invest substantially in ARM to develop the next generation of technology.
Overnight, and as expected, investors sold Softbank heavily, its shares falling 10% to a three-month low. The ARM acquisition, SoftBank’s biggest takeover to date, adds to the heavily-indebted company’s burdens.
Reuters news agency quoted Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management, saying: “The decline in SoftBank shares was as expected. IoT (internet of things) may be promising in the long term, but it might not lead to profit in the short term,”
Its fall held back Japan’s Nikkei which edged up to a near six-week high on the back of Wall Street’s rise to a fresh record.
The Nikkei was up 0.3% at 16,546.82 after rising to 16,658.11, its highest since 9 June.
ARM Holdings is one of Britain’s most successful technology companies,
Softbank pledged to double the workforce at the Cambridge-based ARM Holdings, whose microchips are used in devices such as Apple’s iPhone.
Shares in ARM shot up more than 41% to close near the recommended 1,700p per share, representing a 43% premium to the closing price of 1,189p on Friday.
It is also 41.1% above the all-time high closing price of 1,205p on 16 March 2015.
Shareholders will also be entitled to an interim dividend of 3.78p per ARM Share which will be paid on 10 October.
The bid gave the market a lift amid speculation of other similar bids for companies with strong overseas trade. The FTSE250 closed 0.84% or 140 points higher, while the FTSE 100 was 0.4% higher or 26 points at 6,695.42.
Prime Minister Theresa May said last week that she opposed foreign companies buying strategically important British businesses, referring to the controversial acquisition of Cadbury, which was acquired by Kraft of the US.
She claimed the Cadbury deal and a later bid for AstraZeneca would have been blocked if she had been in a position to do so.
But her comments received a mixed reaction and critics pointed out the dangers of political interference in the markets which can amount to protectionism. This can also lead to tit-for-tat retaliation from other countries.
It has also been noted in the past week that British companies are vulnerable as a result of the falling pound which has made them cheap.
According to Neil Wilson, markets analyst at ETX Capital, the Arm/SoftBank deal shows “the effect of Brexit and the collapse in the pound as British companies become ripe takeover targets”.
“The pound is down around 10 per cent since the referendum and this makes British firms a lot more attractive,” he added.
Ben Southwood, head of research at the Adam Smith Institute, said: “Vetting all foreign bids for British firms represents yet another step on the risky road to ‘Italyification’ of the UK economy, where inefficient national champions are propped up and those putting money into our growth are scrutinised based on their national origin.
“The fact you can later sell your business to a wider pool of investors—and attract capital from everywhere in the world—is a major driver behind British investment. It is also the foundation of Britain’s world-beating finance industry, which provides an outsized portion of UK output, and UK tax revenues.
“British economic success has been based on openness to trade and investment for hundreds of years. Theresa May must not put an end to that.”
Mrs May, who has not held any political office on economic and business matters, is nonetheless a former City banker.
Last week she pledged tougher rules on corporate governance to control boardroom pay and make shareholder votes binding.
Softbank’s Mr Son said: “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”.
“This investment also marks our strong commitment to the UK and the competitive advantage provided by the deep pool of science and technology talent in Cambridge. As an integral part of the transaction, we intend to at least double the number of employees employed by ARM in the UK over the next five years.
“SoftBank intends to invest in ARM, support its management team, accelerate its strategy and allow it to fully realise its potential beyond what is possible as a publicly listed company. It is also intended that ARM will remain an independent business within SoftBank, and continue to be headquartered in Cambridge, UK.
“This is one of the most important acquisitions we have ever made, and I expect ARM to be a key pillar of SoftBank’s growth strategy going forward.”
Stuart Chambers, chairman of ARM said: “It is the view of the board that 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. SoftBank has given assurances that it will invest considerably in the business, including doubling the UK headcount over the next five years and maintaining ARM’s unique culture and business model.
“ARM is an outstanding company with an exceptional track record of growth. The board believes that by accessing all the resources that SoftBank has to offer, ARM will be able to further accelerate the use of ARM-based technology wherever computing happens.”
The deal follows the acquisition last week of Poundland by the South African company Steinhoff International.