SoftBank's Negotiations for Vision Fund's Stake in Arm
SoftBank Group Corp is discussing the purchase of the 25% stake in Arm Ltd. it does not directly own from Vision Fund 1 (VF1), a $100 billion investment fund created in 2017. This potential acquisition could bring a significant win for investors who have waited years for solid returns.
Arm's Impending Listing on Nasdaq
The negotiations are happening as SoftBank is planning to list the chip designer on the Nasdaq the following month. The valuation is expected to fall between $60 billion to $70 billion.
Potential Windfall for VF1 Investors
Should the talks lead to a deal, Japanese tech investor SoftBank would provide an immediate windfall to VF1 investors like Saudi Arabia's Public Investment Fund and Abu Dhabi's Mubadala. This comes after losses from previous SoftBank investments in companies like WeWork and Didi Global.
The Alternative: Selling Arm Shares Over Time
The alternative option — allowing VF1 to sell its Arm shares in the stock market post-IPO — would take longer and entail more risk, especially if Arm's shares were to decline following the IPO.
VF1's Return to Profitability and SoftBank's Future Plans
Recent profitability in VF1, driven by the excitement around AI, has not mitigated previous losses. However, a windfall for VF1's investors could enhance SoftBank's chances of sourcing capital from them again in the future.
Negotiation Details and Possible Outcomes
The exact valuation for Arm is still under discussion, and there is no guarantee that an agreement will be reached. Masayoshi Son has recused himself from the matter, leaving the negotiations to investment committees and advisory boards.
Implications for Arm's IPO and SoftBank's Stake
If an agreement is reached, SoftBank will sell fewer Arm shares during the IPO and likely retain a stake of between 85% and 90%.
Cornerstone Investors and Previous Deals
Arm's IPO will also benefit SoftBank, despite recent losses. SoftBank sold a 25% stake in Arm to VF1 for $8 billion in 2017 and has been negotiating with technology companies, including Amazon, to become cornerstone investors.
Investment Performance of VF1 and VF2
SoftBank reported investment gains for VF1 and losses for VF2, highlighting the complexity of their investment landscape.
SoftBank's Strategy and Market Conditions
SoftBank's defensive stance since technology valuations crashed in May 2022 is shifting to an "offense" mode due to excitement over AI advances.
Arm's Business Landscape and IPO Preparations
Arm's licensing approach has given it an edge over the broader chip industry, though weakening smartphone demand has affected earnings. After rejecting a listing in London, the company is pursuing an IPO on a U.S. exchange, led by major financial groups like Goldman Sachs and JPMorgan Chase.
