Is the sale of ARM a 'surrender' or an 'endorsement' for the UK?

It was announced last week that ARM Holdings, one of the UK’s biggest technology companies, is being bought by Japanese firm Softbank for £24bn. Here’s what you need to know.

What is ARM?

You may never have heard of ARM Holdings, but there is a good chance you own items that use its technology. The firm licences its semiconductor technologies to many other companies: Samsung’s Galaxy smartphones, Apple’s iPhone and iPad, Amazon’s Kindle, Nest’s smart thermostats, Ford’s cars and Fitbit’s fitness trackers all contain ARM tech.

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It is also believed to be behind a quarter of the world’s microcontrollers – that’s the small computer chips that are usually designed for one specific task. Known as the ‘internet of things’ these are in electronic passports, flash memories, lift systems, Oyster cards and car control systems.

The firm is a “beacon of British engineering and innovation,” says James Titcomb in The Telegraph.

So, it’s a tragic loss we’re losing it to Japan then?

There are many people who certainly think so. “As a result of the fall in the value of the pound against the yen, Britain’s leading tech outfit has become subject to an audacious £24bn bid by a giant Japanese corporation,” says Alex Brummer in the Daily Mail.

Brummer’s concern is that the Softbank takeover will result in job losses and the disappearance from British shores of one of the country’s most prestigious companies. “Softbank has earned a rapacious reputation of being a buyer and seller of firms rather than a nurturer of new technologies,” he adds.

The company has said the takeover will not result in job losses - and has pledged increased investment in the UK business. “We know from experience that promises made in the excitement of takeover bids by foreign vultures are rarely worth the paper they are written on,” says Brummer.

“British managers have lost control of a landmark enterprise to a Japanese conglomerate which could be an awkward parent (its ownership of wireless networks may compromise ARM’s neutral position as a chip supplier, for example) and which may or may not be capable of keeping five-year promises in a fast-evolving industrial landscape,” says Martin vander Weyer in The Spectator.

Brummer and Weyer both cite Cadbury as an example of how badly wrong an overseas takeover can go. Kraft broke promises about job security and also the taxman lost out on millions when Cadbury was re-domiciled in Switzerland.

However, the ARM takeover comes in the wake of the new Takeover Panel rules that give legal power to enforce job promises.

Is there any good news?

“If a foreign investor wants to bet his company on a deal like this, is that not a ringing endorsement of the strength of Britain’s technology credentials rather than a sign of its weakness?,” asks Titcomb.

ARM needs private investment right now, he argues. “The company, for all its expertise, is still small compared to that great American chipmaker, Intel. So in the race to design semiconductors that will run the internet-connected technologies of the future – diverless cars, drones, smart cities – a period of heavy investment will help.”

“Assuming Softbank sticks to its promises – and given that it will be monitored by an auditor and subject to the Companies Act, that can be expected – this jewel of UK technology will remain in Cambridge, keep its current management and name, hire thousands of people, and invest heavily in the next computing era,” says Titcomb.

“ARM’s sale is not a surrender, it is an endorsement, and we should welcome it.”

Is £24bn ARM takeover now 'in doubt'?

20 July

An audacious £24bn takeover of the UK microchip maker ARM "could be in doubt", claims The Guardian, after shares in the would-be buyer crashed in Tokyo yesterday.

Investors could not react when the deal was first announced as the Tokyo stock market was closed for a holiday on Monday. When it reopened, anxious traders sold out of SoftBank, the company buying one of the UK's prized technology firms, causing shares to tumble more than 10 per cent lower for the day.

In contrast, ARM shares rose more than 40 per cent and were holding at 1,669p this afternoon in London trading, a figure only marginally below the £17 per share that SoftBank has agreed to pay.

Investors in the Japanese group have "questioned" the price tag for the business, says the Wall Street Journal. They believe it represents a 43 per cent premium on a price that is already inflated since Britain voted for Brexit because this led to a slump in the pound and boosted ARM's majority overseas earnings.

Some investors also say the acquisition of the British firm is a strategic change of direction for the Tokyo based internet and telecoms giant and could have serious financial consequences for a group that already has an £89bn debt pile.

But could the shareholder reaction threaten the deal?

The Guardian notes that the last time SoftBank's shares slumped this much was when it proposed a £17bn buyout of the American mobile network Sprint in 2012. Then as now shareholders did not have an approval vote and the deal, after it was sweetened to see off a rival offer, went through.

SoftBank's charismatic chief executive Masayoshi Son, who owns 19 per cent of the company's shares, is defiant in the face of the criticism.

"If the investors do not like it, they will sell," he says. "I am the largest shareholder in SoftBank. I share the same interest as the other shareholders."

Meanwhile there is some disquiet among ARM shareholders, who believe the company has been substantially undervalued and will be worth £22 a share by 2020, according to The Times.

The Cambridge firm is a major player on the international stage. It makes 95 per cent of chips used in smartphones around the world, including the iPhone series and Samsung's Android–powered rival.

In reality, though, it is unlikely that shareholders will reject a deal that is at such a high premium, especially in the wake of Brexit.

The new government seems happy with the deal and is unlikely to present any obstacles. New Chancellor Philip Hammond has called it a "vote of confidence" in the UK, indicating that SoftBank has pledged to invest in ARM to double its UK workforce.

Perhaps the biggest threat is from a third party, says Neil Campling, an analyst at Northern Trust Capital Markets, who points out that the deal contains no exclusivity clause or break fee.

"ARM has opened the doors to a counter in our view," he says. "And the more we think about it the more likely and sensible it is for others to run the rule over this." He says the likes of Apple, Intel, Qualcomm, Microsoft and Google could emerge as rival bidders for the British firm.

Japan's SoftBank buys UK tech firm ARM for £24bn

18 July

Japan's SoftBank has agreed to buy Cambridge-based ARM Holdings, one of the UK's biggest tech firms, for £24bn.

ARM, which was founded in 1990 and now employs around 3,000 people, designs microchips for smartphones including Apple and Samsung devices, reports the BBC.

The £24bn deal includes a premium of 43 per cent on the company's £16.8bn closing market value on Friday, although news of the sale saw the share price rocket by 45 per cent in London, adding £7.65bn to its total value.

With stock reaching 1,742.85p this morning, ARM's board is expected to recommend to shareholders that they accept the offer.

SoftBank founder and chief executive Masayoshi Son said: "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.

"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 with the SoftBank group as we invest to capture the very significant opportunities provided by the internet of things."

BBC technology correspondent Rory Cellan-Jones says it is "hard to exaggerate how important ARM is to the UK tech sector".

There will be "sadness this morning in Cambridge" at the news the firm has lost its independence, he adds.

However, ARM, which will keep its headquarters in Cambridge, says it expects to at least double the number of staff it employs within the next five years. It added that SoftBank would not shake up the firm's structure.

SoftBank is expected to preserve the existing senior management and keep its partnership-based business model.

Prime Minister Theresa May has previously questioned the value to of foreign takeovers to the UK, says the BBC, but a spokesman welcomed news of the takeover, saying it showed the country could thrive outside the European Union.

"This is good news for British workers, it's good news for the British economy," he said. "It shows that, as the Prime Minister has been saying, we can make a success of leaving the EU."

The takeover will be funded by SoftBank's own cash reserves and a loan from Japan's Mizuho Bank.