Rely on the most comprehensive, up-to-date legal content designed and curated by lawyers for lawyers
Work faster and smarter to improve your drafting productivity without increasing risk
Accelerate the creation and use of high quality and trusted legal documents and forms
Streamline how you manage your legal business with proven tools and processes
Manage risk and compliance in your organisation to reduce your risk profile
Stay up to date and informed with insights from our trusted experts, news and information sources
Access the best content in the industry, effortlessly — confident that your news is trustworthy and up to date.
With over 30 practice areas, we have all bases covered. Find out how we can help
Our trusted tax intelligence solutions, highly-regarded exam training and education materials help guide and tutor Tax professionals
Regulatory, business information and analytics solutions that help professionals make better decisions
A leading provider of software platforms for professional services firms
In-depth analysis, commentary and practical information to help you protect your business
LexisNexis Blogs shed light on topics affecting the legal profession and the issues you're facing
Legal professionals trust us to help navigate change. Find out how we help ensure they exceed expectations
Lex Chat is a LexisNexis current affairs podcast sharing insights on topics for the legal profession
Printer Friendly Version
On 18 July 2016, Japanese-incorporated SoftBank Group Corp (SoftBank) made an all-cash offer for leading UK-based technology company ARM Holdings plc (ARM), structured by way of a scheme of arrangement.
ARM shareholders are set to receive 1700p per share held, valuing the acquisition at £24.3bn. The consideration offered represents a 43% premium to the closing price of ARM on the last business day prior to the firm offer announcement. As of 18 July 2016, the acquisition is the largest deal of 2016 by transaction value—19.8% higher than the second largest deal, the £20.3bn merger of the London Stock Exchange and Deutsche Boerse announced in March 2016. See deal summary: London Stock Exchange Group plc—offer by Deutsche Boerse AG
At the date of the announcement SoftBank's market capitalisation on the Tokyo Stock Exchange was approximately £46.3bn (¥6.468tn), down 10% from the last business day prior to the firm offer. This may indicate a common view among bidder shareholders that SoftBank is overpaying—the offer value itself represents a significant proportion (52%) of SoftBank's market capitalisation.
SoftBank may consider ARM to have significant growth potential. This is supported by its references to developing ARM's 'Internet of Things' business and its leadership position in IP licensing and R&D outsourcing services to semi-conductor companies. SoftBank may also view ARM as undervalued but without a profit forecast or quantified benefits statement provided in the firm offer announcement it is too early to draw any definitive conclusions.
There was a significant rise in actual and competing bid scenarios in the first half of 2016 compared to the equivalent period in 2015. With the competitive landscape for UK public M&A improving, the 43% premium being offered to ARM's shareholders may be an attempt to avoid a competing bid scenario arising and having to pay more for ARM while incurring additional (legal, financial and other) costs.
The Japanese yen has risen 23% since the beginning of 2016 to the date the acquisition was announced. Of this 23% rise, 12% was a direct result of Brexit (from the 23 June 2016 period onwards). This weakening of the British pound against major currencies has made UK public M&A targets more attractive to non-UK bidders. However, even when offsetting currency impact of Brexit, ARM shareholders are still being paid a high premium (31%).
When taking currency fluctuations into account, the £24.3bn deal value has been made £5.58bn and £2.92bn cheaper since the start of the year and since the Brexit vote respectively.
The cash consideration payable under the offer is to be partly funded through SoftBank's existing cash resources and partly through debt financing. SoftBank has secured a term loan agreement of up to £7.3bn (¥1tn) with Japan-based Mizuho Bank, Ltd. A willingness to lend such large amounts by a foreign bank against the backdrop of Brexit and the general political and economic volatility the UK faces indicates a high level of confidence in ARM and the wider UK economy despite these factors.
This is in contrast with the recent example of Singaporean bank United Overseas Bank halting lending on London mortgages post-Brexit, but this is a different industry to ARM.
[table id=7 /]
In its firm offer announcement, SoftBank signalled its intention to give binding post-offer undertakings in accordance with Rule 19.7 of the City Code on Takeovers and Mergers (the Code). Since post-offer undertakings were introduced after the fall out from Pfizer Inc's failed possible offer for AstraZeneca plc in 2014, there have been no instances of bidders giving post offer-undertakings with bidders choosing not to be bound by their commitments and potentially risking panel sanction for non-compliance.
SoftBank is proposing post-offer undertakings to double ARM's employee base in the UK and increase ARM's employee headcount outside of the UK over a five-year period. These are ambitious proposed commitments considering they are based on the assumption that ARM will grow in both market share and profitability and in light of the duplication of resources which a combined group is often left with post-takeover.
The post-offer undertakings will be given for the five-year period after the acquisition completes—a significant period of time to be bound by such undertakings and risk possible panel sanction. However, this gives SoftBank an extended period of time to satisfy these seemingly onerous undertakings.
In her speech on 11 July 2016 launching her successful campaign to become Prime Minister, Theresa May confirmed her willingness to introduce new powers for the government to intervene in UK public M&A and be capable of 'stepping in to defend a sector', making express reference to US-bidder Pfizer's failed approach. The foreign bidder element of this deal may be a contributory factor for SoftBank's decision to give a post-offer undertaking.
These post-offer undertakings may also be a tool to avoid the making of increased offers as Pfizer did on three separate occasions after employee and UK pharmaceutical industry concerns were raised by target shareholders and the UK government, leading to a 18% uplift in the offer value. See deal summary: AstraZeneca plc—possible offer by Pfizer Inc (withdrawn)
[table id=9 /]
It is worth noting that there are no competition or anti-trust conditions for the deal, which is surprising for a deal of this size with a bidder and target who operate in global markets.
0330 161 1234