Major UK tech success story Arm (ARM) looks set to be bought by Japanese conglomerate SoftBank (Jap:9984) after the Asian group's £24.3bn cash approach for the microchip titan.
SoftBank and Arm's directors together hold just 1.6 per cent of the group's shares, so both took pains to assure investors the business wouldn't suffer. The pair promised to preserve Arm's brand, business model, culture and management team, and at least double its UK headcount over the next five years. The latter point particularly appears to be a boon to new prime minister Theresa May so soon after the Brexit vote given the deal will be the largest acquisition of a European technology business.
Arm designs microchips, licenses its blueprints to customers, such as Apple and Samsung, then collects a royalty each time they ship a device powered by its technology. Its chips are used in more than 95 per cent of smartphones and over 30 per cent of all microchips with processors sold worldwide.
SoftBank holds a majority stake in US carrier Sprint and owns just over a third of Yahoo Japan, a regional offshoot of the US internet giant. In the past two months, it has netted about $20bn (£15.1bn) by cutting its stake in Chinese e-commerce giant Alibaba to around a quarter and selling mobile gaming group Supercell to Chinese investment giant Tencent.
The offer of 1,700p in cash per share represents a premium of more than 40 per cent to both Arm's closing share price just before the deal and its all-time high in March. As SoftBank doesn't have any sizeable semiconductor businesses, the deal doesn't require regulatory approval.
Arm's board may have decided that ramping up investment while demand in mature markets slows would be best done without a public listing. Meanwhile, SoftBank's bosses are eager to use Arm's technology to tap into the 'internet of things' - the worldwide surge of internet-connected devices.
It also expects Arm to benefit from its expertise and global relationships, and plans to invest in engineering talent and complementary acquisitions. While SoftBank chief executive Masayoshi Son has said Brexit was not a factor for him, it's thought his company amassed large amounts of sterling when it fell against the yen to help fund the acquisition.
Numis analysts expect adjusted pre-tax profits of £581m in 2016, giving EPS of 35.5p, rising to £704m and 43p in 2017 (from £500m and 30.4p in 2015).
