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After Brexit, do we want to keep foreign buyouts at ARM's length?

Media centre home > Feature and comment > After Brexit, do we want to keep foreign buyouts at ARM's length?

Published: 25/07/16

When the news that SoftBank was to acquire ARM Holdings for £24.3 billion (approximately $32 billion) hit the headlines last week, most people hadn't heard of either company.

But the takeover could be significant to a post-Brexit British economy.

The deal shows some confidence that the UK is still an attractive investment location - which the new Chancellor Philip Hammond was quick to highlight saying 'Britain was open for business'.

It also brought the UK's world-leading technology expertise to the fore.

Cambridge-based ARM Holdings, the UK's biggest technology company, designs the microchips used in most smart phones (including Apple and Samsung). It also employs more than 4,000 people around the world.

SoftBank will buy the company, after ARM Holdings agreed to the takeover, at the eye-watering price of £24.3 billion. SoftBank is offering £17 per share which represents a premium of approximately 43 per cent to the closing price of £11.89 on 15 July.

Critics have said the deal merely highlights the opportunity for foreign companies to swoop in and buy up successful British companies cheaply by taking advantage of the weak pound due to uncertainty following the leave vote.

However, the fluctuation of the pound is insignificant in this deal. Following the June 23 referendum, the pound has depreciated by 11 per cent against Japanese Yen.

But, this is offset by a 16.7 per cent rise in ARM Holding's share price since the Brexit vote - again highlighting that the economy isn't all doom and gloom since the shock result.

Since ARM receives revenue in US dollars, the depreciation of pound is not a big concern for SoftBank.

The chairman and chief executive of the Japanese firm, Mr. Masayoshi Son, 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."

SoftBank is aiming to keep ARM as an independent entity – a preservation style integration approach.

Moreover, SoftBank intends to preserve existing senior management team and the leadership of the key corporate functions of Legal, IT, Finance and Human Resources at least for the next five years (from effective date of acquisition).

Research indicates that retention of existing employees is critical for the post-acquisition success. Therefore, retention of science and technology talent would ensure preservation of tacit knowledge which is essential for the continuing development of new technology in ARM holdings.

One of the motives of this deal is to support and accelerate ARM's position as the global leader in intellectual property (IP) licensing and research and development outsourcing for semiconductor companies.

SoftBank believes that its profound industry expertise and global network of relationships will accelerate adoption of ARM’s IP across existing and new markets.

In addition, SoftBank intends to preserve ARM's long-term focus on generating more value per device and driving licensing wins and future royalty streams in new growth categories.

However, these expected benefits depend on SoftBank’s ability to successfully implement the growth strategy during the post-acquisition phase.

The world of technology is fast moving and SoftBank will need to make sure they can keep up the pace to ensure the purchase of ARM is a success. 

The author:

"The deal shows some confidence that the UK is still an attractive investment location"