Mobile phones yes, IoT who knows, could be massive, could be a damp squib…

10 quid says it ends up like the sell off of the gold reserves….

Never see the Germans flogging stuff off.

That may be because the UK media don’t tend to cover German M&A in any depth. For example, Midea (Chinese) just bought Kuka, one of Germany’s biggest industrial robotics companies, although tbf the German government does seem to have put up a bit of a fight, whereas to a non-expert in M&A the Arm takeover does look a bit like the Kraft Cadbury takeover to me; promises that won’t be kept due to some mysterious “change in circumstances”.

What similarity to gold?

Nothing to do with government
Different type of asset
Sale not a low point
Very large premium to current price

Another one for the annals of M&A delivering value (cough)?

Will HMRC lose significantly more in corporation tax if licensing revenues are reported through Japan than would be gained from a doubling of income tax through increasing the UK workforce?

No because the IP is still owned by the UK company.

The thing is Softbank have paid a very full price, this will enable the sellers, which undoubtedly will include many non UK parties to redeploy the funds in areas which they believe have better growth prospects. As long as we continue to produce good people, much will be invested here.

Wasn’t the Kuka deal a 25% stake? Not a full buyout?

Reached 76.4% on Friday – http://www.dw.com/en/midea-attains-three-fourths-stake-in-kuka/a-19402426.

No because the IP is still owned by the UK company.

The thing is Softbank have paid a very full price, this will enable the sellers, which undoubtedly will include many non UK parties to redeploy the funds in areas which they believe have better growth prospects. As long as we continue to produce good people, much will be invested here.

Indeed.

Companies like ARM are a once in a lifetime Behemoth for the UK, yes they may re-invest in UK start ups (less so post Brexit), but you don’t get many ARMs in a lifetime…..

Reached 76.4% on Friday – http://www.dw.com/en/midea-attains-three-fourths-stake-in-kuka/a-19402426.

What’s really infuriating about Chinese M&A’s is that China is nowhere near as open to the west for such takeovers – and Chinese tech companies are massively subsidized by the Chinese state through various ways.

Many SOEs destory huge amounts of value – why would you want to invest in them?

China is over-investing in surplus capacity that will produce a lot of zombie assets in time. Very poor use of resources.

Oddly and co-incidently, Mrs THM has just popped in to remind me that she bought ARM on a H Lansdown tip a few months ago – can almost forgive Peter Hargreaves funding Brexit. Nice surprise as I didn’t know she had bought them!! 🙂 only 1.4% offer above close so probably not worth holding on to?

New (Lego) Porsche for you then THM!

I don’t see the government angle at all – what does it have to do with the state and, given how hawkush Hammond is, then his statements come at little surprise.

UK and US corporate behaviour is very explicitly about returning shareholder value, with an exit always at the top of that list. And bearing in mind the original IPO was the first exit, this deal hardly comes as a surprise.

You don’t hear much about German M&A because so many businesses there are privately held with a different approach to value return. In fact the biggest PITA deal in my old life was acting for a German company buying a UK/US/French business – they might have been good engineers but they knew nothing about M&A!

Adults should avoid twitter – the urge to say something is usually wrong

Sad day to see them go, even if they claim they’ll keep HQ in Cambridge and increase staff (heard this from plenty of take overs and then situation changes).

Owned ARM based products back since they were Acorn RISC Machines. Good old Acorn A5000 with an ARM3 and now the house is full of kit with ARM chips.

THM, if ARM are onto a losing gain, explain this

Meanwhile, contract chipmaker Taiwan Semiconductor Manufacturing Co Ltd, a customer of ARM, cut its 2015 outlook for industry growth last week, partly on sluggish demand in China.

But shares in the Cambridge-based company rose more than 8 percent on Wednesday as worries about any impact of a wider slowdown on ARM were cast aside. The stock topped the gainers in the FTSE 100 index and the rise put it on track for its best day for two and half years.

Analysts at Investec hailed ARM’s strong growth in royalties, and said that while licensing was slightly lower than expected, it was not a material miss.

“We see ARM as a standout long-term quality play, with materially underpinned royalty value ahead,” they said.

ARM’S processor royalty revenue increased 37 percent year-on-year to $185.6 million, as its new technology won share in an overall market that saw revenue decline by 2 percent in the corresponding period.

Sure, they may need to diversify – but it does look like they design the best products on the market and can apply their chips to a wide range of products outside of smartphones and TV’s.

They see it is a good long term play at the then price – takeover is 40% premium – different conclusion.

Interesting to read the opinions regarding this sale of people bemoaning “little Englanders” on other threads.

Read this over on an investments board

“This is like someone coming a long and giving you 20 times the value of your house” No it is not. It is like a Japanese person buying your house for a 40% premium based on valuation in £, with Yen that have risen sharply in value against pound when house prices are going up 10% pa. Not a good deal IMO.

In the last 5 years (since 17 Jul 2011) SP has gone up 110%. The devaluing of pound means that there is upward pressure on the SP. If there was no takeover the SP could easily go up 150% in the next 5 years. Institutional investors, with their short term view, will jump at a 40%+ premium but in the long term the takeover is bad for investors. Shareholders of ARM shares would have been off if it had remained independent. On the other hand SoftBank shareholders will do very well out of the deal over the next 5 years I predict, which is why SoftBank have made bid. I can only assume ARM management want a quick profit or feel that they cannot raise enough capital to grow ARM as fast as SoftBank can. The majority of future profits from ARM will go to Japan instead of UK which is bad for the UK.

Interesting to read the opinions regarding this sale of people bemoaning “little Englanders” on other threads.

The EU is fairly protectionist – I have little faith in the British government not to allow every company, institution and piece of infrastructure to be sold to make a quick buck over sustainable long term growth.

The start of the U.K. firesale? Vultures circling for anything worth having at the knockdown rates our currency collapse causes?

£24Bn is an absolute bargain!

Considering Facebook bought WhatsApp! for $19Bn only a year ago….

Tom, surely you don’t need to be talked through why the share price of a company whose revenues are largely in $ and coats have large £ element has been strong recently. If you do, then avoid investing in equities.

Take the money, re-invest in IoT and make another great return. Thats what good entrepreneurs do.

£24Bn is an absolute bargain!

Considering Facebook bought WhatsApp! for $19Bn only a year ago….

Everything is relative – but at 60 times earnings you are expecting very significant revenue growth.

Tom, surely you don’t need to be talked through why the share price of a company whose revenues are largely in $ and coats have large £ element has been strong recently. If you do, then avoid investing in equities.

Take the money, re-invest in IoT and make another great return. Thats what good entrepreneurs do.

I think I get your point THM, but respectfully – that post was a little muddled.

Of course though, you’re right – the founder of a startup I worked for, sold out to the Americans and then used the money to setup right next door and create a very similar but logical evolution of the product he just sold to the now slightly pissed Americans.

From the Times 20/7/16

ARM purchase offer £17/share

ARM predicted share value if targets met £22/share by 2020

But market uncertainty making that risky.

I think that plus the low £ high Yen probably explains what happened.

Firesale

Firesale

I am an asset manager with 35 years of experience and I have to say you don’t have faintest idea what you are talking about. None. Zero. Your post is a very lame attempt to make a political point.

The sale has nothing at all to do with the Government, there is no legal basis on which they could block the sale. The recent move in the £/¥ is small versus the premium being paid. Company directors have a fiduciary to best serve the company including the shareholders. The share price today reflects an estimate of future growth, so thise future predictions are already “priced in” for Softbank to pay a premium above that they are making even greater growth assumptions.

As an aside the ex founder of Autonomy was on Newsnight, when HP bought his company they paid a premium and basically lost the lot as they overpaid massively. Tech aquisitions generally take a very brave soul and some herioic assumptions about the future. It really is like roulette.

Did I suggest it had anything to do with government or government blocking it?

I’ve been involved with M&A a little myself, including advising people you’ll have heard of on occasion.

But I haven’t been an asset manager for about 15 years now. Poor engineer me.

And yes £22 predictions of the future value need a pinch of salt – but people do have this habit of believing them.

Well there must be a lot of stupid people out there igm including the senior managers of ARM if it was a firesale

Anyway you can do your own maths as an engineer – assume you are correct and its worth £22 in 2020, what’s the NPV today? Not far off current price (depending on discount factor obviously). So hard to call a firesale….

Alternatively is a 6-7% CAGR over the period attractive or not based on the risk factors?

But remember there are many thousands of people analysing ARM on a daily basis, include the management team. Until the deal, the equilibrium price was around £12 – the top of the range over the past three years (£8-12). So why were all the smart people not buying the shares like crazy if it was a firesale?????

Mrs THM bought early this year at £9 ish and sold at £16.75 – not a bad return but we shall see if she’s a mug or a shrewd investor. I am backing the latter. Just wish she had told me too!!

THM – she’s neither. If she’s happy with £17 then that’s all that matters. Perhaps it will rise perhaps fall – but I assume we won’t know as it won’t be listed (could be wrong on that – we were a UK company listed in Holland for a bit because the takeover didn’t take the last 5% of shares – odd things happen).

Also I’d assume £22 2020 is a real calculation so the NPV would be £22. If it’s nominal you’ve got a point. Write to the Times and complain about their journalism.

Mrs THM bought early this year at £9 ish and sold at £16.75 – not a bad return

The Tory dream: it doesn’t matter if the most successful tech company in the UK is sold off to a Japanese multinational, just so long as you make a profit eh?

what are we selling next?

Her decision is easier

Assume deal takes place at some point at £17 – you get £17 at that point
Sell yesterday at £16.75 – lock in significant return but give up 1.4% in the future.

Risk 1 – deal doesnt happen, locking in and giving up looks smart – very smat if it goes back <£12
Risk 2- another bid comes in at £19 – you give up 13%. Hmmm, not so smart

But all in all NPV of 22 in 2020 is not far away from sale price, so I conclude she did the right thing. Work out what the true value of a company is – buy at a discount, sell at a premium, ignore the market noise.

p.s. I very much doubt the £22 is an NPV calculation based on my experience of reading brokers reports!!

Graham – how do you think companies attract investors in the first place. Why was ARM listed?

What if SoftBank achieves the synergies and growth that it expects – is the outcome better or worse? Jaguar cars as an example recovered under John Eagan in the 80s but was unable to finance expansion and was stuck as a one-product, one-market car. Foreign ownership and capital bought investment, a diversified product range and secured jobs. Which would you prefer?

Anyway, we all have a choice. Think about the opportunities that these developments create or watch passively while moaning on the internet…..you decide….goes off to see how/if banks are undervalued after recent falls

We always work in real. You’d still NPV that for time value but you’d ignore any inflation effects. Stable industry low discount? Hey maybe you’re right. Never able to run a DCF in my head.

And without a spreadsheet I wouldn’t do the DCF – but then we’re not a finance house and we don’t look to con (ooh highly pejorative) the people putting the money up. Because he employs us.

He’s got a decent track record to be fair.

Real and PV are different things

And yes £22 predictions of the future value need a pinch of salt – but people do have this habit of believing them.

You said it yourself. £22 is a future price. What is the PV now? That is the question…

Who is “he” out of interest?

Who he? Not in public. Email me if you really care.

Glad you spotted my error just as I was correcting it.

Never claimed to be smart 😉

Dont worry – juts wondered if you worked for ARM!!

I just did a quick and dirty NPV calculation – my preference is to work out the discount factor implied by the two prices. I can then decide whether that compensates me sufficiently for the risk. Of course with QE messing up the reference rate that is a little harder these days.

But implied discount factor is approx 5-6% (to £22). Not bad but I can get 8% return elsewhere. Hence time to sell and invest elsewhere IMO. But that’s by-the-by if the actual upside is only £17. My point remains – if the FV in 2020 is £22 and the current price today (PV) is £17, that is not really a firesale.

If the FV in 2020 was really £22 then the share price would not have been half that a few days ago…

So who is correct then?

The thousands of investors who determine the PV to be £12 or the acquirer who is prepared to pay £17?

Does SoftBank ownership make ARM a better or worse company?

There’s no such thing as a “correct” price. New information comes along, the market reacts, and the price is the point at which willing buyers and sellers coincide. That the shares are currently worth just under £17 is presumably a reflection of the market’s confidence that Son will come up with the money, coupled to the unlikeliness that anyone else will better it.

I don’t know if softbank ownership will be good or bad for ARM. Not really my problem to think about it. My current problem is more to do with CGT thresholds and spousal transfers, which is a nice one to have but unusual this early in the financial year 🙂

There’s no such thing as a “correct” price. New information comes along, the market reacts, and the price is the point at which willing buyers and sellers coincide.

True, like beauty, the correct (sic) price is in the eye of the beholder!

That the shares are currently worth just under £17 is presumably a reflection of the market’s confidence that Son will come up with the money, coupled to the unlikeliness that anyone else will better it.

Minus a small discount for execution risk

My current problem is more to do with CGT thresholds and spousal transfers, which is a nice one to have but unusual this early in the financial year

😀

SoftBank sell 25% of ARM

So the sell on starts….

They are selling the stake into their own fund. Why not ?