SoftBank Group selling Arm to Nvidia for up to $40 billion

SoftBank Group said Monday it is selling British chip designer Arm Ltd. to U.S. chip company Nvidia for up to $40 billion, potentially creating a new giant in the industry.

“We reached a final agreement with … Nvidia to sell all shares in Arm” at the value of up to $40 billion dollars (about ¥4.2 trillion), SoftBank said in a statement.

The deal is subject to approval by authorities in several jurisdictions, including Britain, China, the United States and European Union, the statement added.

If approved, it will be one of the biggest merger-acquisitions in the world this year and promises to propel Nvidia to the forefront of the semiconductor sector.

Founded in 1990 in the United Kingdom, Arm specializes 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 favored in the video game industry, has seen sales skyrocket during the coronavirus crisis, with gaming a popular past-time in lockdown.

Its products are also increasingly used for artificial intelligence and in data centers.

SoftBank bought Arm in 2016 for $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.

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

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

And Nvidia will also issue $1.5 billion in equity to Arm employees, for a deal worth a total of up to $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 to 8.1 percent in Nvida’s outstanding shares, but insisted that would not make the U.S. firm a subsidiary or affiliate.

On Monday, SoftBank Group’s shares soared after the company reached the deal to sell Arm and revived talks about taking the group private.

SoftBank’s shares jumped as much as 10 percent in Tokyo on Monday, the most in about six months. The conglomerate’s senior executives will be revisiting a management buyout plan, which had earlier met with internal opposition, sources said, asking not to be named as the information isn’t public.

SoftBank founder Masayoshi Son has considered a management buyout of his company since at least 2015, when talks on financing with an overseas partner fell through. The idea of taking the company private has been fueled by a persistent gap between the company’s market valuation and the worth of its holdings, which include Alibaba Group Holding Ltd.

The latest deliberations are at an early stage and may not lead to a transaction. Senior management within SoftBank have various viewpoints on the plan, and many veterans are against the idea, said one of the sources.

Those advocating for the plan suggest SoftBank would receive much less public scrutiny as a closely held company. SoftBank declined to comment. The Financial Times earlier reported on the internal discussions.

The sale of Arm will unwind another strategic investment in favor of boosting liquidity and will let Son focus on the more tactical investing he has said he wants to pursue.

Son owned more than 20 percent of the conglomerate as of a June 25 filing, according to data compiled by Bloomberg.

KEYWORDS

Softbank, investments, Masayoshi Son, chipmakers, arm, nvidia

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