SoftBank’s UK job pledge re­stricts Arm ma­noeu­vres

Af­ter a run of poor re­turns, un­der-pres­sure Ja­panese con­glom­er­ate con­sid­ers sell­ing its mi­crochip as­set

The Daily Telegraph - Business - - Front Page - By James Tit­comb in San Fran­cisco and Hasan Chowd­hury

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.

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.