27 October 2016
Brexit has offered the best timing for Masayoshi Son to acquire the British technology giant ARM. Photo: Bloomberg
Brexit has offered the best timing for Masayoshi Son to acquire the British technology giant ARM. Photo: Bloomberg

Masayoshi Son shows business acumen in ARM deal

George Soros and Jim Rogers are widely regarded as moguls in the market. My hero is Softbank founder Masayoshi Son.

Son has made a great fortune from his investments in Yahoo, Alibaba and Supercell.

And now, just as the market is being roiled by Brexit, Son’s Softbank is spending 24.3 billion pounds (US$32 billion) to acquire ARM Holdings Plc, Britain’s largest technology firm.

The takeover of ARM would be the biggest deal yet for SoftBank. In fact, it’s quite a bargain for Softbank as it enjoyed a 30 percent discount for getting hold of a company that represents the future of technology in the next two decades.

Over the past year, the sterling has slumped over 15 percent against the US dollar, and dived over 10 percent since the EU referendum last month.

Meanwhile, the Japanese yen, which has been sought after by investors as a safe haven, soared nearly 20 percent against the dollar.

As a result, the sterling has plunged over 30 percent against yen during the period, from its peak of 195 in July last year to below 140 at present.

Son has waited for the best timing to grab his target for quite some time.

He sold his 80 percent stake in Supercell to Tencent for HK$66.8 billion last month in a bid to raise funds for the ARM deal.

The unexpected result of Brexit has pushed up yen but pulled the sterling down, offering him the perfect timing to go for the deal.

Why Son is so interested in ARM?

The UK chip company has been betting heavily on the Internet of Things in recent years.

Established in 1990, ARM has dominated over 90 percent of the mobile devices market as it built a business designing chips that squeeze the most out of limited battery capacity on mobile devices.

Apart from Apple, Samsung smartphones and cheap Chinese mobile knock-offs also use ARM chips.

Its patented technology is too hard to be copied. China contributed to almost 20 percent of its revenue last year, becoming ARM’s second-largest market.

Son is gambling that ARM’s chips will find their way into self-driving cars, virtual-reality devices and machines with artificial intelligence, as the era of Internet of Things is coming.

The acquisition represents a price-earnings ratio of 47 times and a price-book ratio of 13 times, an exorbitant price tag. 

The deal has shown Son’s vision for the technology sector in the next 20 years.

Softbank cashed out its stake in Supercell and acquired ARM, which goes quite well with Son’s investment philosophy.

Son believes the internet gaming industry is reaching the peak, and it’s time to play with the next growth engine.

The business world has been roiled by Brexit.

But unlike financial giants HSBC and Barclays or industrial firms like Rolls-Royce, ARM is less exposed to the risk of the UK leaving the European Union.

In fact, ARM focuses on the research and development of small, low-powered devices and doesn’t actually make semiconductors but license its designs instead.

That means ARM sells invisible patent technology, which is less vulnerable to changes in financial regulation or tariffs.

Talents are another key part of ARM’s assets. Currently, it has a dozen R&D centers across the world.

The majority of its 3,000 R&D staff are based in the UK. Therefore, it could take advantage of the weaker sterling to reduce costs in the country and expand R&D presence elsewhere.

This article appeared in the Hong Kong Economic Journal on July 20.

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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