SoftBank’s UK job pledge restricts Arm manoeuvres
After a run of poor returns, under-pressure Japanese conglomerate considers selling its microchip asset
THE Japanese owner of British microchip company Arm faces a hurdle to any sale of the business in the next year due to a legally-binding pledge to hire hundreds of new staff in the UK.
SoftBank is believed to be considering speeding up plans to sell or float Cambridge-based Arm, which it bought for £24bn in 2016, as the Japanese conglomerate comes under pressure to boost cash.
However, both Arm and SoftBank are bound by a Takeover Panel pledge to double Arm’s UK staff over five years, a promise to invest in Britain it made when it bought the company.
It must have at least 3,494 staff in Britain by 2021 and 70pc of those must be technical employees. The undertaking would apply even if Arm were to change hands.
Arm said it had 2,742 staff in the UK last September, 74pc of which were technical. This put it on track to hit its targets, although the company recently agreed to spin off its internet of things division to SoftBank, which is believed to involve around 250 UK staff.
An Arm spokesman said the company was stepping up recruitment in the wake of the sale, focusing on hiring more graduates as the economic downturn from the coronavirus makes the job market more challenging. The company said it remained committed to meeting the hiring targets.
The pledge could complicate any attempt to sell or float Arm. SoftBank has said it will re-list the company by 2023, but has recently engaged Goldman Sachs to explore options as it seeks to raise cash amid pressure from activist investors.
Arm’s hiring spree under SoftBank ownership has dramatically increased costs, meaning the company could find it more difficult to show a path to profits while it seeks new investment.
Analysts say it could command a $44bn (£35bn) valuation for the microchip firm if it floats ahead of schedule.
Rolf Bulk, equity research analyst at New Street Research, claims the Cambridge firm stands to benefit from a return to public markets in 2021, with the current “ramp of 5G” set to drive demand for its chip designs suited to next-generation mobile technology.
“We wouldn’t be surprised to see an IPO brought forward from its original target date of 2023,” he said. “We expect Arm can grow profits 20pc to 30pc per year versus 7pc to 10pc for the broader semiconductor index. This difference justified an IPO at a valuation of $44bn.”
This month, The Daily Telegraph reported that the former FTSE 100 company could be eyeing up the Nasdaq exchange in New York for a float, a venue that typically grants higher valuations to tech firms than London’s main board.
Arm is majority owned between SoftBank, with the company’s separate Vision Fund owning a 25pc stake. Both are under pressure to show returns on their investments, due to poor returns on investments in companies including WeWork and Uber. Activist investor Elliott Management has been pushing for SoftBank to return cash to shareholders.
Arm’s processor designs are used in every popular smartphone, and the company was recently boosted by the news that Apple will start to use Armbased microchips in its laptops.