TOKYO (Reuters) – The collapse of SoftBank Group Corp’s deal to sell chip designer Arm to Nvidia marks a major setback for the Japanese conglomerate’s efforts to raise funds at a time when valuations for its portfolio are under pressure.
The deal, which had met with industry opposition, fell through due to regulatory hurdles, a source told Reuters, with an initial public offering from Arm planned instead.
Analysts have questioned the prospects of such a move, given SoftBank’s previous plan to sell Arm and its IPO history with many portfolio companies trading below their listing price.
“We are concerned that a continued overshoot of SBG’s reduced stake could prevent the stock from rising,” Jefferies analyst Atul Goyal wrote in a note dated Jan. 29 as we s expected the deal to fail.
Any decision would also have to deal with Arm’s problems in China, where its China-based joint venture is in dispute with its original CEO, Allen Wu.
Under the collapsed deal, SoftBank, which bought Arm for $32 billion in 2016, was to receive $12 billion in cash and around 6.7-8.1% of Nvidia – worth up to $50 billion at current market prices.
Nvidia has become the most valuable US chip company thanks to its graphics processor chips, with shares gaining 82% over the past year.
SoftBank shares were trading flat Tuesday morning ahead of the group’s earnings. A 1 trillion yen ($8.7 billion) buyout announced in November helped prop up — but failed to reverse a decline — the stock price, which has roughly halved since the peaks of last March.
SoftBank and Nvidia declined to comment. Arm did not immediately respond to a Reuters request for comment.
The group funneled money to its second Vision Fund, which had invested in more than 150 startups, but investors would like SoftBank to take further steps to boost shareholder returns, analysts said.
“Investors would prefer to see asset sales. I think they would have preferred to see asset sales all the way through,” said Kirk Boodry, an analyst at Redex Research.
The conglomerate owns a stake in e-commerce giant Alibaba, whose shares have fallen nearly two-thirds since their peak in October 2020 amid a regulatory crackdown.
Alibaba’s recent listing of American Depository Shares led Citigroup analysts to observe this week that the move “may also suggest potential selling intent by SoftBank.”
Pressure from falling asset valuations comes at a watershed moment for the group as it ceases investing in SB Northstar’s trading arm and senior executives leave the group The slide highlights SoftBank’s tough choices at a watershed moment for the group as it ends investing in its business arm SB Northstar and senior executives leave the group.
(Reporting by Sam Nussey; Additional reporting by Josh Horwitz; Editing by Gerry Doyle)
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