Doubts over ARM acquisition

1 min read

Could Softbank’s proposed acquisition be in trouble? News from Japan suggests the company’s shareholders aren’t happy with the proposed deal. Shares in the company have fallen by 10 per cent since it announced its plans to acquire the UK’s biggest technology company.

Shareholder concerns focus on the company’s massive debt, currently standing at more than £86billion, and analysts have expressed misgivings, suggesting the acquisition of ARM could add yet more billions to that debt mountain. More importantly, some have questioned the rationale behind the acquisition arguing that it is at odds with Softbank’s long term investment strategy.

Hermann Hauser, who was one of the founders of ARM, warned that that debt mountain could see money earned by ARM used to pay interest or cut the company’s debt – rather than invested back into the company.

Does ARM really want to end up simply servicing Softbank’s debt? Could a sizeable amount of debt end up being added to the company’s balance sheet?

Softbank’s founder, Masayoshi Son, while charismatic, has a track record when it comes to making sizeable acquisitions and while his offer is high, around 43% more than ARM’s closing share price last week, it isn’t out of the ordinary when compared to other recent technology acquisitions.

Son’s efforts to explain the reasons for the proposed acquisition haven’t gone down well with the investment community – many are calling it opportunistic as the weak pound has made UK assets much cheaper to buy. However, it is highly unlikely that a deal of this size could have been put together post Brexit, raising the question: when did these two companies actually start talking about this?

With no break-up fee or lock it could be possible that some other company – the likes of Apple, Intel and Microsoft have been mentioned – could be interested in making a bid for ARM. But if one of those companies did make a bid how might that affect ARM’s neutrality; a crucial part of its business model which Softbank’s proposed acquisition looks to retain.

While doubts have been raised about the deal, it has also pushed the views of the new Prime Minister Theresa May concerning an industrial strategy to the fore.

A done deal? Not by a long shot!