Softbank is considering to buy Vision Fund’s 25% stake in Arm as per Reuters.
NEW YORK, Aug 13 – People familiar with the matter say that Vision Fund1, a $100 billion investment fund that SoftBank Group Corp (9984.T) raised in 2017, is in talks to buy the 25% stake in Arm Ltd that it does not already directly own. This could be good news for investors who have been waiting years for strong returns.
The conversations take place as SoftBank, which presently owns 75% of Arm, plans to float the chip manufacturer on Nasdaq next month at a valuation of $60 billion to $70 billion.
If the negotiations result in a purchase, the Japanese tech investor would be giving VF1 investors, like Saudi Arabia’s Public Investment Fund and Abu Dhabi’s Mubadala, a significant, immediate profit. Many of SoftBank’s bets on startups, including workspace provider WeWork Inc (WE.N) and ride-sharing company Didi Global (92Sy.MU), backfired, leaving them nursing losses.
Given the size of the investment, the alternative — allowing VF1 to sell its Arm shares in the stock market over time after the initial public offering (IPO) — would generally take at least one to two years. Additionally, it would pose a greater risk to the fund’s investors because it’s likely that Arm’s shares could decline after the IPO.
Thanks to investors’ enthusiasm for artificial intelligence increasing the value of some of the firms it invested in, VF1 achieved profitability in the most recent quarter. Though $56 billion of the Vision Fund 2 (VF2)’s funding originated from the Japanese company and its executives, including Chief Executive Masayoshi Son, SoftBank was unable to find outside investors due to its prior losses.
Although SoftBank presently has no intentions to do so, the sources claim that a sizable payoff for VF1 investors could increase SoftBank’s prospects of later turning to them for funding.
Son has disqualified himself from VF1’s deliberations on the topic so that the fund can decide independently in the interest of its investors, according to the sources. Son has recruited investment bank Raine Group to help SoftBank on the negotiations.
Negotiations are being handled by the investment committees of VF1 and SoftBank, as well as the investment advisory board of fund investors, according to one of the sources.
It was difficult to determine the precise price that the two parties were contemplating for Arm as part of their transaction, and the sources issued a warning that an agreement might not be achieved.
According to the sources, who asked to remain anonymous since the negotiations are private, if a deal is reached, SoftBank would be selling fewer Arm shares in the IPO and would most likely be keeping a holding of between 85% and 90%.
Arm, VF1, and SoftBank all declined to comment. Requests for comment from Raine were not immediately answered.
INVESTORS
Arm’s IPO would be beneficial not only for VF1, but also for SoftBank, which last week disclosed its third straight quarterly loss. Major holdings like Chinese e-commerce company Alibaba Group (9988.HK), German telecoms company Deutsche Telekom (DTEGn.DE), and American wireless carrier T-Mobile U.S. (TMUS.O) all saw their valuations decrease, which had an adverse effect on the company.
SoftBank, which took Arm private for $32 billion in 2016, sold a 25% stake in the company to VF1 for $8 billion in 2017. SoftBank has also been in talks with several technology companies about bringing them onboard as cornerstone investors in Arm ahead of its IPO, including Amazon.com Inc (AMZN.O), Reuters reported.
Last week, SoftBank said that VF1 generated a gain of $12.4 billion on investments totaling $89.6 billion, while VF2 suffered a loss of $18.6 billion on investments totaling $51.8 billion.
The massive investment firm has been operating in “defense mode” since May 2022, when technology valuations plummeted in the face of rising interest rates and a shaky economy. However, Son declared in June that he intended to switch to “offense” mode amid anticipation over developments in artificial intelligence.
After a deal to sell Arm to Nvidia Corp (NVDA.O) for $40 billion fell through last year because to concerns from American and European antitrust regulators, SoftBank started making plans for an IPO of the company.
For its IPO, Arm had been mulling an offering of up to $10 billion. Its plans to list come as significant firms, such as grocery delivery service Instacart and marketing automation startup Klaviyo Inc, get ready to list in New York, signaling the beginning of a comeback in the U.S. IPO market following a dry period that lasted a year and a half.
Earlier this year, Arm indicated it would explore an IPO on a U.S. exchange in response to a British government effort to list its shares in London.
Because it licenses designs rather than spending money to develop processing systems itself, Arm’s business has performed better than that of the larger chip industry. Its technology now permeates data centers and smart phones and generates large royalty payments. However, the recent decline in smart phone demand has hurt Arm’s revenues.
Rene Haas, the chief executive of Arm, was invited to join SoftBank’s board of directors in April as a reflection of the company’s importance to the company’s investment portfolio.
Source: Reuters