19 Jul 2016

ARM: UK chip designer to be bought by Japan’s Softbank

Had this takeover of ARM happened in normal times, it’s not clear the now Prime Minister’s response would have been quite so welcoming.

It was only a week ago that Theresa May had promised a “proper industrial strategy” that would provide far greater scrutiny of foreign takeover bids.

Today we have a colossal foreign takeover bid, yet there appears to be little or no scrutiny whatsoever.

Of course, these are not normal times.

And Mrs May and her newly-appointed Chancellor are instead holding up Softbank’s £24.3 billion deal to buy ARM as a “vote of confidence” in Britain.

Which on some level it is. For a foreign investor to want to spend billions on a British company at a time of so much uncertainty is testament to ARM’s global success. Its chip designs are in 95 per cent of the world’s smartphones  and it’s sitting pretty to be a leader in the next big technology trend – Internet-connected devices everywhere, the so-called “Internet of Things”

Softbank has vowed to double the UK workforce in the next 5 years, keep the HQ in Cambridge and expand staff number overseas. All music to the ears of a new Prime Minister desperate to showcase why Britain is the best place to do business.

But why wave the deal through without so much as a committee hearing? Not even an arched eyebrow?

Why is this deal any different to Kraft’s acquisition of Cadbury or when AstraZeneca was nearly sold to Pfizer? Both deals that were referred to in Mrs May’s speech on industrial strategy.

Sure, ARM isn’t strategic in the same way a defence or pharmaceuticals company is. But it is Britain’s biggest technology firm and one of the world’s most successful microchip designers.

You don’t power Apple and Samsung smartphones without doing something very right. Shouldn’t we do everything we can to keep hold of this British success story? Encourage ARM to become the hunter rather than the hunted and help grow Britain’s tech sector? Shouldn’t that be central to the Prime Minister’s “proper industrial strategy”?

To be sure, a takeover offer at a 43 per cent premium to ARM’s share price is hard to reject. And under the Enterprise Act of 2002 the Prime Minister has very little power to halt the sale even if she wanted to.

But shareholders should do their own due diligence where perhaps Mrs May won’t do it for them.

They might start by looking at Softbank’s $22 billion mega deal to buy the US telecoms firm Sprint, three years ago. The ambition was for Softbank to take on US rivals AT&T and Verizon. But that proved difficult and last year Softbank tried to sell Sprint, to no avail.

Now Softbank’s chairman Masayoshi Son says he wants to invest in ARM’s engineering and research and development to help position the company to take advantage of the growth in connected devices. But a cynic would say there’s no guarantee he will do so. Especially given ARM’s dependency on skilled software engineers, many of which come to Britain from overseas and who may or may not be so welcome in the future once we’re out of the EU.

A cynic might also point out that  has made its move now because of the slide in Sterling against the Yen, which has made the deal about £3 billion cheaper than the day before Britain voted to leave the EU. Masayoshi Son was adamant today that “We did not use this Brexit as the opportunistic reason to invest”, pointing out that ARM’s share price has risen by a commensurate amount since Brexit because it earns its revenues in US dollars. All of which is true, but you can’t help but feel the timing of the Brexit vote is just a little too close for that to be entirely credible.

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