SoftBank Up’s It Game From ‘Defense’ To ‘Offense’, Looks To Acquire Remaining 25% In Arm Ltd.

SoftBank Engages in Talks to Acquire Vision Fund’s 25% Stake in Arm Ltd.

SoftBank Group Corp is currently in discussions to purchase the remaining 25% stake in Arm Ltd that it does not directly possess from Vision Fund 1 (VF1), a $100 billion investment fund initiated in 2017. Insiders familiar with the matter revealed that this potential acquisition could prove advantageous for investors who have patiently awaited substantial returns over the years.

This development coincides with SoftBank’s plans to take chip designer Arm public on Nasdaq next month with an estimated valuation ranging between $60 billion and $70 billion.
The ongoing negotiations with VF1 to solidify the deal could significantly benefit VF1 investors, including entities such as Saudi Arabia‘s Public Investment Fund and Abu Dhabi‘s Mubadala. These investors previously faced losses stemming from SoftBank’s less successful bets on startups like WeWork Inc (WE.N) and Didi Global (92Sy.MU).

If an agreement is reached, SoftBank’s move could expedite substantial gains for VF1 investors, sidestepping the typical extended period required for stock market sales post an initial public offering (IPO).
Selling Arm shares in the stock market over time carries greater uncertainty due to potential share price fluctuations. On the other hand, an immediate acquisition could mitigate such risks.

VF1 has recently regained profitability, largely driven by the growing enthusiasm around artificial intelligence, which has augmented the value of select startups in its investment portfolio. Despite its previous losses, SoftBank struggled to secure external investors for Vision Fund 2 (VF2), which was backed by $56 billion in capital from SoftBank itself and its management, including CEO Masayoshi Son.

The potential windfall for VF1 investors could potentially enhance SoftBank’s prospects of accessing their capital for future initiatives. However, it is important to note that as of now, SoftBank does not have concrete plans to pursue this avenue, according to insider sources.

Masayoshi Son has delegated responsibility for VF1’s deliberations on this matter to investment bank Raine Group to ensure impartial decision-making aligned with the fund’s investor interests.

Negotiations are being managed by VF1’s investment committee and SoftBank’s investment advisory board, involving representatives from fund investors.

Although the exact valuation for the Arm transaction remains undisclosed, it’s worth noting that there is a possibility of no agreement being reached. If a deal does materialize, SoftBank might choose to retain a stake ranging between 85% and 90% in Arm, potentially reducing the number of Arm shares to be sold in the IPO.

Although, SoftBank, VF1, or Arm have provided no official comments regarding the ongoing discussions. Similarly, Raine Group, the investment bank assisting SoftBank, has not offered immediate remarks.

Beyond the potential benefits to VF1, Arm’s IPO holds significance for SoftBank itself. Recent quarterly losses for the company were attributed to reduced valuations of major holdings like Alibaba Group, Deutsche Telekom, and T-Mobile U.S. The purchase of Arm in 2016 for $32 billion was followed by SoftBank’s sale of a 25% stake to VF1 for $8 billion in 2017.

In addition to its discussions with VF1, SoftBank has been exploring collaborations with technology firms, including Amazon.com Inc (AMZN.O), to secure cornerstone investors for Arm’s IPO.

VF1 reported a profit of $12.4 billion on $89.6 billion of investments, while VF2 experienced a loss of $18.6 billion on $51.8 billion of investments.

SoftBank has shifted its approach from “defense” to “offense” since June 2022, indicating a renewed focus on capitalizing on advancements in artificial intelligence. The decision to pursue an IPO for Arm followed the breakdown of a $40 billion deal with Nvidia Corp (NVDA.O) due to regulatory objections.

Arm’s potential listing of up to $10 billion aligns with a recovery in the U.S. IPO market, with companies like Instacart and Klaviyo Inc preparing to list in New York. While Arm rejected the British government’s campaign for a London listing, it has opted for a U.S. exchange flotation.

Distinguished by its royalty-based revenue model, Arm has maintained its standing in the chip industry, primarily by licensing designs for smartphones and data centers.
Despite recent smartphone market softness, Arm’s profitability remains supported by its widespread technology adoption. This is evidenced by its significance within SoftBank’s investment portfolio, which prompted the invitation for Arm Chief Executive Rene Haas to join SoftBank’s board of directors in April.

The Last Bit, SoftBank’s plans and ongoing discussions to acquire the remaining stake in Arm Ltd from Vision Fund 1 is a well-thought-out strategy play in the semiconductor industry.

The move is indicative of SoftBank’s ongoing efforts to reshape its investments and capitalize on the growing significance of AI and technology.

Although the negotiations’ outcome remains uncertain, the potential for SoftBank to gain complete ownership of Arm holds implications for investors, the tech market, and SoftBank’s future initiatives.