SoftBank Soars After Arm Deal, Renewed Talks to Go Private

• Nvidia to buy Arm for up to $40 billion in cash-and-stock deal
• Son has considered a management buyout since at least 2015

SoftBank Group Corp. shares soared after the company reached a deal to sell chip designer Arm Ltd. for as much as $40 billion and revived talks about taking the group private.

SoftBank’s shares jumped as much as 10% in Tokyo on Monday, the most in about six months. SoftBank announced the sale of Arm to Nvidia Corp. for a combination of cash and stock. The Japanese conglomerate’s senior executives will also be revisiting a plan to buy out public shareholders, which had earlier met with internal opposition, people familiar with the matter 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 people.

“Despite all the efforts to narrow the discount, none has worked,” said Justin Tang, head of Asian research at United First Partners in Singapore. “A privatization might be the last arrow in Son’s quiver.”

SMBC Nikko Securities Inc. analyst Satoru Kikuchi said earlier this month a management-led buyout looks increasingly feasible because of SoftBank’s asset sales and share buybacks.

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.

SoftBank has been criticized recently for a strategy of using derivatives to invest in technology companies and its executives have met with investors in recent days to assure them that the bets are relatively conservative, people familiar with the matter told Bloomberg on Friday. Media reports revealing details of SoftBank’s derivatives bets upset investors and sparked about a $9 billion loss in market value for the company the first day of trading after the reports.

The sale of Arm, which SoftBank acquired in 2016 in its largest deal, 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.

Nvidia will pay $21.5 billion in stock and $12 billion in cash for the U.K. based-chip designer, including a $2 billion payment at signing. SoftBank may receive an additional $5 billion cash or stock if Arm’s performance meets certain targets, the companies said Sunday in a statement. An additional $1.5 billion will be paid to Arm employees in Nvidia stock.

The envisioned sale of Arm -- whose designs underpin the vast majority of smartphone and mobile chip technology -- may draw opposition from rivals. Regulatory approval may take as long as 18 months before the transaction is completed and the deal needs sign-offs from U.K., China, the European Union and the U.S., the companies said.

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

When Son considered a buyout in 2015, the company’s market capitalization had been brought down by the mounting debt and losses at Sprint Corp. to $65 billion. Since then, Son acquired Arm for about $32 billion, launched the $100 billion Vision Fund and sold the money-losing U.S. wireless operator to a rival. He also offloaded nearly 4.5 trillion yen of assets to pay down debt and buy back 2.5 trillion yen of shars.

Valued at about $115 billion by the market before Monday’s rally, SoftBank was trading at a 53% discount to its assets, United First Partners’s Tang said. With roughly 65% of the company’s stock in public hands, that’s an $81 billion price tag even before the premiums are factored in, according to his calculations.

“Questions will be asked about the source of funds for such an undertaking, ongoing buybacks notwithstanding,” Tang said. “Son could pledge the stakes in Alibaba and SoftBank Corp., which have very predictable cash flows, for loans. Undertaking a buyout with a private equity fund could allow him to keep doing deals.”

— With assistance by Ian King, Liana Baker, and Giles Turner

(Updates with an analyst’s comments from the fourth paragraph.)