Softbank Group Corp. is offering 1,700p per share to Acquire ARM Holdings (LSE: ARM) and the board of ARM is recommending the deal to its shareholders.
That’s approximately 43% up on the closing price of 1,189p per ARM Share on 15 July, which was the last business day prior to today’s announcement. The proposed deal values the entire existing issued and t0-be-issued share capital of ARM at approximately £24.3bn.
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Crystallising upside potential
From my point of view as an investor in ARM, this potential deal represents a good result and a satisfactory outcome to my investment. ARM’s chairman, Stuart Chambers, said: “It is the view of the Board that this is a compelling offer for ARM Shareholders, which secures the delivery of future value today and in cash. The Board of ARM is reassured that ARM will remain a very significant UK business and will continue to play a key role in the development of new technology. “
With ARM’s shares creeping up toward 1,200p again recently, perhaps investors shouldn’t be surprised to discover that something was afoot. Back in early 2015, the shares were trading at a similar level, largely driven by takeover rumours, but at the time ARM’s board appeared to rule out the possibility of any deal, asserting that they saw ARM’s future as being an independent company.
Capturing the Internet of Things opportunity
Softbank intends to preserve the ARM organisation, its headquarters in Cambridge, its senior management and its partnership-based business model. Over the next five years, Softbank plans to double ARM’s employee headcount in the UK and to increase the number of employees abroad.
In a powerful endorsement of ARM’s strategy for growth, Sofbank asserts that the transaction will enable the combined group to capture the Internet of Things (IoT) opportunity. If there was ever any doubt in investors’ minds about the validity of all the talk about the potential of the IoT, such doubt has surely been dispelled now.
Masayoshi Son, Chairman and CEO of SoftBank said: “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. This investment also marks our strong commitment to the UK and the competitive advantage provided by the deep pool of science and technology talent in Cambridge. SoftBank intends to invest in ARM, support its management team, accelerate its strategy and allow it to fully realise its potential beyond what is possible as a publicly listed company.”
Softbank intends to fund the acquisition from its existing cash resources and the ARM directors intend to recommend unanimously that ARM shareholders accept the deal.
ARM Holdings has sported a rich-looking valuation for as long as I can remember. But, despite any valuation reservations investors might have had, this outcome demonstrates how quality can win through in the end.
ARM’s consistently high returns on equity, its resilient double-digit annual increases in earnings, its cash pile, its strong, entrenched trading niche in its industry and the firm’s forward-looking and innovative approach to research, development and marketing are attractive to investors of all types — including other companies.