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Reverse Acquisition

Gabe Moretti, Senior Editor

It has been now one week since SoftBank of Japan has announced its intention to acquire ARM for a little over $32 billion in cash, an eye popping 43% premium from the stock price before the announcement.  As I have remarked in my previous blog:“ The ARM – SoftBank Deal : Heart Before Mind) the financials do not make sense, but, after a week of consideration and after reading Junko Yoshida’s interview of Masayoshi Son, SoftBank CEO, I can see how it makes strategic sense.  This is of course my interpretation, not something SoftBank would ever confirm.

I started by considering how Japan has not been able to recover from its industrial near collapse, in spite of its use of every financial tool, both conventional and somewhat unconventional.  There is only one thing left to do: get foreign companies, especially those leading in their fields, to invest in Japanese companies.  But of course, there have been no takers. What to do next: buy one!  And that is what SoftBank has done.

I should have trusted my intuition immediately.  Looking at the title of my blog I wrote ARM- SoftBank Deal.  It should in fact have been SoftBank – ARM deal, since SoftBank is the acquiring party.  Here is what is actually happening.

SoftBank is “lending” ARM $32 billion to “purchase” SoftBank.  Masayoshi Son has stated: “I may choose to become ARM’s Chairman of the Board”.  He has also stated that the reason for the purchase is to use ARM products within all of the fiscal deals SoftBank is involved in at this point like: Vodaphone Japan, Alibaba, and TaoBao.  Any entry in new markets is analysts speculation.

Yoshida reports Son stating: ““ARM will become central to SoftBank’s core business in three, five and 10 years’ time,” he said.  Note he did not say that ARM will provide new markets, only that it will strengthen existing ones.  And since ARM will be a wholly owned division of SoftBank, there will be no regulations compelling SoftBank to divulge operational details of ARM that it does not choose to make public.  Thus much of what SoftBank will do under the ARM cover will remain private.

Should we expect another such move from Japan,Inc.?  I will be watching the financial news carefully for a while now.

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