SoftBank's $40 bn sale of chip group Arm to Nvidia collapses

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softbank, Nvidia, Didi Chuxing, debt, Masayoshi Son

Japan’s SoftBank said Tuesday that the $40 billion sale of chip powerhouse Arm to Nvidia had collapsed because of “significant regulatory challenges” over competition concerns, and it now plans to take the unit public.

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The move comes after US authorities filed a lawsuit seeking to block the sale and probes were launched into the mega-deal in the United Kingdom and Europe.

Alongside the announcement, the Japanese telecoms firm-turned-investment giant reported a net profit of 29.0 billion yen ($251 million) in the third quarter.

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The figure marks a sharp drop from the 1.17 trillion yen profit logged in the same period in the previous financial year, when results were boosted by huge tech-share rallies.

With a focus on debt to drive growth, technology firms of the kind CEO Masayoshi Son has heavily invested in have taken a beating in recent months on the expectation of higher US interest rates.

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And there have been challenges elsewhere for SoftBank, including losses on Chinese ride-hailing giant Didi Chuxing, which has been hit by Beijing’s regulatory crackdown.

“Since we invested in Didi we have seen a huge loss of value,” Son said at a press conference to announce the earnings.

Didi Chuxing has been forced to delist from the New York stock exchange and reported a $4.7 billion net loss in the third quarter.

Chinese giant Alibaba Group, which is SoftBank’s biggest single investment, has also tumbled in recent months and reports have suggested Son may be considering the sale of some of his stake in the firm.

Son, who has poured money into some of the tech world’s biggest names and hottest new ventures, said in November that Softbank was “in the middle of a blizzard”.

“The blizzard we’re in hasn’t ended yet — we’re still in the middle of it,” he said Tuesday.

“But I believe spring will come… We’re planting more and more new seeds now and even in the middle of this blizzard, they’re sprouting,” he added.

– ‘Not a good time’ – But analysts are less upbeat.

“As SoftBank Group is now an investment fund… its earnings are heavily influenced by the state of the stock market,” said Hideki Yasuda, a senior analyst at Ace Research Institute.

“Now is not a good time for SoftBank Group.”

“That ‘blizzard’ probably has room to run, as the usual buy-the-dip mentality that boosted tech over the last two years is less visible,” added Kirk Boodry, an analyst at Redex Research who publishes on Smartkarma.

In November, Son announced a share buyback worth one trillion yen (then $8.8 billion), reportedly under pressure from shareholders frustrated by SoftBank’s sinking stock price.

But it may now find itself with less cash on hand than anticipated, with analysts predicting an Arm IPO — which SoftBank said it wanted by March 2023 — would bring in less than the planned sale.

Nvidia is one of the world’s largest and most valuable computing companies, while Arm creates and licenses microprocessor designs and architectures.

SoftBank had announced the deal in 2020, when it was valued at $40 billion, although the sum would have been higher now thanks to a rise in Nvidia’s share price.

The deal’s collapse also led to the replacement of long-term Arm CEO Simon Segars by Rene Haas.

SoftBank said its consolidated net profit for the nine months to December 2021 plunged 87 percent year-on-year to 392.6 billion yen.

The group’s investments in volatile tech firms and start-ups have made for unpredictable earnings.

In 2019-20, it reported a record net loss as the start of the pandemic compounded woes caused by its investment in troubled office-sharing start-up WeWork.

But it then reported Japan’s biggest-ever annual net profit in 2020-21, as people moved their lives online during the coronavirus pandemic, sending tech stocks soaring.

The company has also seen internal turbulence recently, with its chief operating officer Marcelo Claure leaving last month, following reports that his demands for as much as $1 billion in compensation had fuelled an internal clash.

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