SoftBank Offers to Acquire ARM Holdings for GBP 24.3 Billion (USD 31.4 Billion) in Cash

4. BACKGROUND TO AND REASONS FOR THE ACQUISITION

SoftBank believes ARM is one of the world’s leading technology companies, with strong capabilities in global semiconductor intellectual property and the “Internet of Things”, and a proven track record of innovation.

The board and management of SoftBank have evaluated ARM in detail and after careful consideration unanimously support this transaction. The board and management of SoftBank believes that the acquisition of ARM by SoftBank will deliver the following benefits:

  • Support and accelerate ARM’s position as the global leader in IP licensing and R&D outsourcing for semiconductor companies

    SoftBank’s deep industry expertise and global network of relationships will accelerate adoption of ARM’s intellectual property across existing and new markets.
  • Maintain ARM’s dedication to innovation

    SoftBank intends to sustain ARM’s long-term focus on generating more value per device and driving licensing wins and future royalty streams in new growth categories, specifically “Enterprise and Embedded Intelligence”.
  • Increased investment to drive the next wave of innovation

    SoftBank intends to support ARM’s multiple growth initiatives by investing in engineering talent and complementary acquisitions with the aim of ensuring ARM maintains a R&D edge over existing and emerging competitors. SoftBank believes such an investment strategy in long-term growth will be easier to execute as a non-listed company.
  • Shared culture and long-term vision

    SoftBank believes the two companies share the same technology-oriented culture, long-term vision, focus on innovation and commitment to attracting, developing and retaining top talent. These common values will be the foundation for the strong strategic partnership necessary to capture the significant opportunities ahead.
  • Maintain and grow the UK’s leadership in science and technology

    SoftBank is investing in the UK as a world leader in science and technology development and innovation and, as evidence of this, intends to invest in multiple ARM growth initiatives, at least doubling the number of ARM employees in the UK over the next five years.

5. BACKGROUND TO AND REASONS FOR THE RECOMMENDATION

ARM has built a differentiated position as the world’s leading semiconductor intellectual property supplier, with a core competency in scalable, highly energy-efficient processors and related technology. Its technology is embedded in more than 95 per cent. of smart phones and over 30 per cent. of all chips with processors sold worldwide in 2015. Over 85 billion systems-on-chip have been shipped to date based on ARM’s technology.

ARM has a proven strategy to maintain or gain share in its target markets, increase the content and value of ARM technology per smart device, and generate new revenue streams from adjacent markets, while investing to create a sustainable business that is fit for the long term. Key new areas of focus such as the “Internet of Things”, networking infrastructure, ARM-powered servers and security applications will be the cornerstone of ARM’s future success and long-term growth.

Whilst the Board of ARM believes that ARM is in a strong position in its business development, the Acquisition represents an attractive premium in cash and secures the delivery of ARM’s long term value potential today. The Board of ARM notes the assurances by SoftBank, including to continue to invest and grow ARM’s business in the UK, and maintain ARM’s headquarters in Cambridge, UK, and is confident that SoftBank is well-positioned to accelerate the delivery of ARM’s strategy and long-term growth.

Further, the Board of ARM notes that the Acquisition represents a significant premium, in cash, of approximately 41.1 per cent. to the all-time high closing price of 1,205 pence per ARM Share; approximately 72.0 per cent. to the volume weighted average closing price of 988 pence per ARM Share for the six months ended 15 July 2016 (being the last Business Day prior to this Announcement); approximately 69.3 per cent. to the volume weighted average closing price of approximately 1,004 pence per ARM Share for the three months ended 15 July 2016; and approximately 43.0 per cent. to the closing price of 1,189 pence per ARM Share on 15 July 2016. The Board of ARM also notes that the terms of the Acquisition imply an enterprise value multiple of approximately 24.4 times ARM’s revenue for the year ending 31 December 2015 of £968.3 million and an equity value multiple of approximately 56.8 times adjusted profit after tax for the year ending 31 December 2015 of £428.9 million.

6. MANAGEMENT, EMPLOYEES AND BUSINESS OF ARM

SoftBank greatly values the skills, knowledge and expertise of ARM’s existing management and employees and therefore intends to preserve the current ARM organisation, including ARM’s existing senior management team, brand, partnership-based business model and culture, to ensure continuity of a strong track record.

Following the Acquisition, SoftBank intends that ARM will continue to operate as a separate business group within SoftBank. SoftBank intends to continue to operate the business of ARM’s existing headquarters, which comprises the majority of the leadership of the Product Groups of ARM and the leadership of the key corporate functions of Legal, IT, Finance and Human Resources, in Cambridge as the head office of the ARM business group within SoftBank for at least the next five years from the Effective Date. SoftBank does not intend to make any major restructurings or any changes in location of ARM’s other operations and places of business.

SoftBank expects the existing personnel of ARM will continue to contribute to the success of ARM following completion of the Acquisition. SoftBank intends that by the end of the period of five years from the Effective Date: (a) in order to enable ARM to continue to develop leading-edge technology in the UK, it will at least double the employee headcount of ARM in the UK; and (b) it will increase the employee headcount of ARM outside the UK. For these increases in headcount, the relative proportion of technical to non-technical employees will be broadly in line with historical trends experienced by ARM. SoftBank will (subject to the consent of the Panel) as soon as practicable, and in any event by no later than the date of the Scheme Document, make post-offer undertakings in respect of these matters in accordance with Rule 19.7 of the Code in all material respects in the terms set out above in (a) and (b) of this paragraph, without qualifications or conditions (“ Post-Offer Undertakings”). SoftBank will need to comply with the terms of the Post-Offer Undertakings that are made, for the periods of time specified in the undertakings and complete any causes of action committed to by the dates specified in the undertakings.

SoftBank also confirms that, following the Scheme becoming Effective, the existing contractual and statutory employment rights, including in relation to pensions, of all ARM employees will be safeguarded in accordance with contractual and statutory requirements. In addition, SoftBank agrees that, for at least 12 months following the Scheme becoming Effective, it will maintain at least the existing level of base salary and pension benefits for each employee of the ARM Group, unless otherwise agreed with the relevant employee.

7. DIRECTORS’ IRREVOCABLE UNDERTAKINGS

SoftBank has received irrevocable undertakings to vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting from those of the ARM Directors who hold ARM Shares in respect of their own ARM Shares (amounting, in aggregate, to 1,976,897 ARM Shares). Such ARM Directors have also each undertaken that, if the Acquisition is implemented by means of a Takeover Offer instead of by way of the Scheme, they shall accept such Takeover Offer in respect of their ARM Shares. The undertakings from the ARM Directors will cease to be binding only if (among other things) the Scheme lapses or is withdrawn and they remain binding in the event that a higher competing offer for ARM is made.

Further details of these irrevocable undertakings are set out in Appendix 3 of this Announcement.

8. INFORMATION RELATING TO SOFTBANK

Founded in 1981, SoftBank is one of the leading operators and investors in the global technology, Internet and wireless sectors. SoftBank’s operating businesses consist of market leading companies in the advanced telecommunications and consumer Internet sectors, including SoftBank Telecom, Sprint Corporation and Yahoo! Japan, as well as growing initiatives in robotics, clean energy and other emerging, technology-based industries.

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