SoftBank sheds assets, is it getting ready to go private? 

Summary

• SoftBank share price jumped 10% after the Group declared the sale of Arm Holdings to Nvidia and renewed talks of taking the Group private.
• Shares of SoftBank plunged last week, which wiped off about $13 billion from its market cap as investors criticised the Group for using options to invest in technology companies.
• SoftBank has agreed to sell British chip designer Arm Holdings to Nvidia Corp for up to $40 billion in a deal that could create a giant in the chip industry.
• Nvidia will pay SoftBank $21.5 billion in common stock and $12 billion in cash of which $2 billion will be payable at the time of signing.

SoftBank Group Corp. (TYO:9984) share price surged 8.96% to settle the day at $6,385 on 14 September after the Company announced that it entered into an agreement to sell British chip designer Arm Holdings to Nvidia Corporation, ending SoftBank’s 4 years of ownership, and also, held initial period discussions on taking the Group private.

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SoftBank Group is a Japanese conglomerate established on 9 December 1986, providing innovative services across an array of industries in the information business.

Last week, SoftBank share price plummeted by 2.87%, 0.61% and 7.15% on 9 September, 8 September, and 7 September, respectively, wiping out about $13 billion from its market capitalisation due to investors worrying about the exposure of the Group to dwindling US technology stocks.

SoftBank bought billions in stock options

SoftBank shares plunged 7.15% on 7 September, in Tokyo Stock Exchange, erasing about $9 billion of its market value, after the conglomerate bought billions of dollars in individual stock options in major tech companies.

The trades were disclosed after the technology-led increase at Wall Street started to stumble. The Group made huge investments on privately held technology start-ups via its $100 billion Vision Fund.

The market has been observing higher than the usual activity, especially in call options, which some analysts witnessed as a contrarian warning about an incomplete Nasdaq sell-off. Few names that witnessed excessive volume of activity consisted of Tesla, Apple, Zoom, etc.

TO KNOW MORE, DO READ: Tech Space Under the Scanner Amidst Brutal Sell-Off

In August, SoftBank revealed that it was forming an asset management subsidiary to trade public securities and also stated about using derivatives. It announced that it would sell above 1 million shares in its Japanese mobile carrier affiliate SoftBank Corp., at a value of $14 billion.

The Group stated that the expansion of cash reserves was needed to make sure that there are flexible options to respond to changes in the market atmosphere. The asset sale comes after the firm announced its plans in March to sell $42 billion in assets and buy back about $23 billion shares, which assisted SoftBank to recover from a fall after WeWork slip-ups and COVID-19 outbreak.

Good Read: SOFTBANK TAKES OVER WEWORK

In March and April, SoftBank had to battle the coronavirus pandemic and the induced restrictions, which took a toll on many start-ups that the Group had invested in. However, the stock took a notable shift later and was up by around a third in 2020 before it witnessed a drop in its price on 7 September.

SoftBank sells Arm Holdings to Nvidia in a deal worth $40 billion

The latest move in the series of big asset sales by SoftBank is its deal to sell Arm Holdings to Nvidia Corp., for more than $40 billion to restructure the semiconductor landscape.

The deal could produce a new giant in the chip industry and if approved, will be one of the largest acquisitions globally in 2020. The Arm sale, valued up to $40 billion, is subject to approval by authorities in several jurisdictions that comprise of the US, China, Britain, and the European Union.

Nvidia is a US technology entity based in California. It designs graphics processing units (GPU) for the gaming, as well as the professional market and has developed in other areas that include mobile computing and automotive market.

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Arm Holdings is a British company formed in 1990 that delivers Internet of things (IoT) solutions to its partners and customers. It provides the IP for chips and delivers cloud services that permit organisations to securely manage the distribution of products.

The sale indicates an early exit for SoftBank, which bought the British technology firm in 2016 for $32 billion. Masayoshi Son, Chief Executive of SoftBank, has praised the potential of Arm Holdings, but has been ripping his stakes in major assets in order to bring in cash.

Some of the highlights of the deal between Arm Holdings and Nvidia Corp., consists of the following:

• The deal will include cash and stock, wherein, Nvidia will pay $21.5 billion in shares and $12 billion in cash comprising $2 billion at the time of signing.
• SoftBank and the Vision Fund, which has 25% stake in Arm, will take a stake in Nvidia between 6.7% and 8.1%
• SoftBank may get another $5 billion in cash or stock, contingent on the chip designer’s performance and Arm employees will get $1.5 billion in shares of Nvidia for the deal.
• The deal is expected to be completed by March 2022.

SoftBank stated that Arm would perform better with Nvidia and sale would increase in its Company’s value for shareholders, while Nvidia stated that the acquisition would assist in forming a premier computing company for the age of AI (artificial intelligence).

Nvidia also stated that Arm would preserve its name and stay in Cambridge, UK where a new international centre for excellence in AI would be established.

The deal has put crucial providers to Apple Inc. and others under the command of a single player and may face repulsions from regulators and competitors of Nvidia. Moreover, the sale has revived speculations about the future plans of SoftBank.

(NOTE: Currency is reported in the US Dollar unless stated otherwise)