SoftBank in Talks to Acquire Remaining Stake in Arm Ltd from Vision Fund 1

Arm’s upcoming IPO holds promise not only for VF1 but also for SoftBank.

SoftBank Group Corp is reportedly in discussions to acquire the remaining 25% stake in Arm Ltd that it doesn’t directly own from Vision Fund 1 (VF1), a $100 billion investment fund raised by SoftBank in 2017. This move could potentially yield substantial returns for investors who have awaited strong profits. Currently, SoftBank holds 75% of Arm’s stake and plans to list the chip designer on Nasdaq next month at a valuation ranging from $60 billion to $70 billion.

If the negotiations succeed, VF1 investors, including Saudi Arabia’s Public Investment Fund and Abu Dhabi’s Mubadala, stand to gain an immediate windfall. Alternatively, selling VF1’s Arm shares in the stock market post the initial public offering (IPO) could take several years, posing higher risks due to possible share price fluctuations.

This move comes amidst SoftBank’s efforts to stabilize its financial position, especially after losses incurred from investments in startups like WeWork Inc and Didi Global. The potential windfall for VF1 investors could enhance SoftBank’s prospects of securing capital from them in the future, although there are no immediate plans for this.

CEO Masayoshi Son, who has hired investment bank Raine Group for advice, has recused himself from VF1’s deliberations on this matter to ensure an independent decision. VF1’s investment committee and SoftBank’s investment advisory board are currently handling the negotiations.

The exact valuation for the Arm transaction remains undisclosed, and there’s a possibility that no agreement will be reached. If a deal materializes, SoftBank could retain a stake of 85% to 90% after the IPO, selling fewer Arm shares.

Arm’s upcoming IPO holds promise not only for VF1 but also for SoftBank, which faced losses due to declining valuations of its major holdings. SoftBank initially acquired Arm for $32 billion in 2016 and later sold a 25% stake to VF1 for $8 billion in 2017.

Despite challenges, SoftBank’s plans for Arm’s IPO continue following the collapse of a deal with Nvidia Corp for $40 billion last year. Arm’s business, primarily centered around licensing designs, has proven more resilient than the broader chip industry. Its technology is pervasive in smartphones and data centers, generating substantial royalty payments. Arm’s decision to list in the U.S. rather than London underscores its global significance.

Expanding on the potential benefits of SoftBank’s acquisition, a successful deal with VF1 investors could mark a strategic move for SoftBank. Not only would it provide an immediate boost to VF1 investors, but it could also solidify SoftBank’s relationship with these investors, potentially paving the way for further collaboration in the future. This could be particularly relevant for SoftBank’s Vision Fund 2 (VF2), which initially struggled to attract outside investors due to the losses incurred by VF1.

Moreover, by retaining a larger stake in Arm through this acquisition, SoftBank could maintain more control over the company’s direction and future growth. As the chip industry continues to evolve and expand into areas like artificial intelligence and IoT, having a significant stake in a prominent chip designer like Arm could position SoftBank for Long-term success in these emerging markets.

Despite the potential advantages, it’s important to note that negotiations are ongoing, and the exact terms of the deal remain uncertain. Both SoftBank and VF1 have not provided official comments on the matter, making it crucial to await formal announcements regarding the outcome of these discussions. SoftBank’s discussions to acquire the remaining stake in Arm Ltd from VF1 mark a significant development in the tech investment landscape. If successful, this move could provide immediate benefits to VF1 investors, potentially bolster SoftBank’s relationship with them, and offer strategic advantages by allowing SoftBank to retain a larger stake in Arm. As the negotiations progress, the tech and investment communities will be eagerly awaiting further updates on this potential deal.