Sale of ARM may be first of a wave of foreign takeovers of UK firms
Despite Theresa May’s enthusiasm, the sale of the chip designer hints at UK weakness
There are fears that the ARM deal could be the first in a new wave of foreign takeovers as overseas buyers capitalise on the strength of their currencies against the battered pound. Photograph: ARM Holdings/PA Wire
“Wow. That’s good.”
That, according to SoftBank’s Masayoshi Son, was how prime minister Theresa May greeted the news that Britain’s most successful technology company is to come under foreign ownership.
The Japanese company’s £24 billion swoop on Cambridge-based chip designer ARM Holdings stunned the City on Monday. Widely regarded as the “crown jewel” of the UK tech industry, ARM has always insisted it would remain independent. But SoftBank’s offer of £17 a share in cash – a premium of more than 40 per cent – did the trick.
Although the massive deal – the biggest-ever tech acquisition in Europe – was put together in just a few weeks, ARM’s board has agreed the terms and directors are urging shareholders to follow suit.
For May and her chancellor Philip Hammond, the phone call from SoftBank’s founder and chief executive over the weekend must have seemed like the first good news to emerge from the financial wreckage of the past few weeks.
Hammond certainly leapt upon the announcement – as the City was still poring over the terms early on Monday morning, he immediately declared it to be a huge vote of confidence in UK plc.
“Just three weeks after the referendum decision, it shows that Britain has lost none of its allure to international investors, “ he said. “Britain is open for business.”
Along with its knockout terms, SoftBank has been careful to provide reassurances over ARM’s future, promising its headquarters will remain in Cambridge and pledging to double ARM’s highly skilled UK workforce of about 1,600 over the next five years.
The UK government’s instant enthusiasm for the deal surprised many observers. Just a week earlier, when still auditioning for the top job, May had outlined her view on takeovers, criticising the Cameron administration for almost allowing drugs giant AstraZeneca to be taken over by Pfizer, which she described as a company “with a record of asset stripping and whose self-confessed attraction to the deal was to avoid tax”.
She went on to say that a proper industrial strategy wouldn’t automatically stop the sale of British firms to foreign ones but “it should be capable of stepping in to defend a sector as important as pharmaceuticals is to Britain”.
But to many observers, including the man who created ARM out of Acorn Computers 25 years ago, the microchip designer is just as strategically important to the UK as AstraZeneca.
Hermann Hauser has not been persuaded by SoftBank’s promises to turn ARM into a “global phenomenon” as the combined company capitalises on growth of the so-called “internet of things”, where everyday objects such as driverless cars and household appliances are wired up and connected to the network – all with the help of ARM’s chips, which are already in 95 per cent of the world’s mobile phones.
Hauser took to Twitter to express his dismay at the deal.
“ARM is the proudest achievement of my life,” he said. “The proposed sale to SoftBank is a sad day for me and for technology in Britain.” And in a letter to the London Times he expressed fears that, despite Son’s pledges of autonomy for ARM, the company’s identity would unravel over time.
The entrepreneur also raised concerns about SoftBank’s debt, which stands at more than $100 billion, largely a result of its takeover of the US mobile phone carrier Sprint three years ago, a deal that is not regarded as a success.
Those debt worries were shared in Japan, where SoftBank shares tumbled 10 per cent after the ARM move, with some analysts also voicing concern at the hefty premium being paid.
Although the ARM takeover was rapidly put together in the wake of the Brexit vote, it would be wrong to regard it as a direct product of the post-referendum financial turmoil. ARM, which earns its revenues in dollars, has been a big beneficiary of the slide in sterling. In yen terms, it’s more expensive now than it was before the Brexit poll.
But there are fears that the ARM deal could be the first in a new wave of foreign takeovers as overseas buyers capitalise on the strength of their currencies against the battered pound. Latest figures from the government show that foreign investors already own almost £1 trillion worth of UK companies.
May and Hammond’s delight at what they term SoftBank’s £24 billion “investment” in Britain is understandable after the turmoil of recent weeks – the country is clearly open for business, as they have repeatedly insisted. But is it now also up for sale?
Fiona Walsh is business editor of theguardian.com