Robert Maire
Moderator
Semiconductor M&A Booms with $32B ARMH Buyout, Devalued Pound Helps Softbank Strategic Aquisition, Value in Hardware and Infrastructure...
View attachment 17751
SoftBank of Japan has struck a deal to buy ARMH, ARM Holdings, for $32B. This is a whopping, eye popping 43% premium over Fridays close. In the press release they said they were only talking for the past two weeks so the deal obviously got very hot when the British Pound saw a huge devaluation after the Brexit fiasco.
While on the surface it seems very high priced, but when we compare it to other valuations, such as Intel, its not as crazy as you would think at first glance.
ARMH is the key to the IOT & mobile future....
Much as Intel was the key to the PC revolution so is ARM the key to the mobile and IOT revolution. When we look at the $32B buyout price versus todays market cap of Intel at $165B, you are comparing a market leader in mobile and IOT which has a lot of runway in front of it versus a larger competitor in a declining market that has been unable to make inroads in mobile trading at five times the market value.
While the business models are obviously very different, licensing versus manufacturing, you could also argue that with Samsung and TSMC around, that manufacturing chips is potentially an outdated market advantage. This seems to in fact be the case as Intel continues to push out its 10NM product while Samsung and TSMC push on.
The importance of being at the leading edge of manufacturing seems to be fading in the PC world.
What does SoftBank get???
SoftBank gets a very strategic positioning in the mobile and IOT markets and obviously compliments its Sprint position in mobile. Its doing so at the perfect time of the Yen versus the pound, with this deal perhaps being the first of what could be a long line of fallout from the Brexit vote. We would imagine they have locked in a currency hedge to insure the savings.
Softbank has already publicly stated its support of UK operations and said it will double employment there.
Their public support of doubling employment can give you some significant insight as to their view of the future potential of ARM's markets.
Intel, woulda, coulda, shoulda bought ARM instead???
There will be a ton of Monday morning quarterbacking going on, particularly in Santa Clara. We were one of those who would have strongly supported a purchase of ARM by Intel as it could have been a very interesting mix of old and new semi players and certainly would have instantly catapulted Intel to the top of mobile.
Given the failure of Intel on the mobile side and its pull back we had thought that the odds of a deal would have increased as Intel would have been forced to buy what it couldn't win in the market. Perhaps SoftBank sensed that Intel might rethink its mobile policy and consider ARM so we could also view this as a well timed preemptive move on the part of SoftBank.
Unfortunately for Intel this blocks what would have been a potential path to mobile relevance. Intel recently brought in new management on the mobile side that has made significant changes but it is yet unclear if this is too little too late and a re-arrangement of deck chairs. We think this move has to spur Intel management to look at other more mobile/IOT strategic acquisitions now that Altera is fully digested.
Semis are Sizzling....Semis Sexy Again???
This is the biggest Semiconductor M&A and clearly shows that there is a large need and a great interest for infrastructure and hardware and even though flappy birds and Uber are where the fun is , you still need hardware to run it on. Processors still need to be ever faster and consume less power. We saw this movie before in the 30 year+ history of the PC and the never ending quest continues in new mobile markets.
Aside from processors there is a lot of semiconductor infrastructure and components in many, many markets that have been overlooked for many years as Apps and mobile stole the spotlight. We think that this deal supports a broad re-awakening of semiconductor interest from investors and will likely spur another flurry of semiconductor M&A for yet another year.
Deal should easily get done...
We see no anti-competitive issue or product overlap. Although the deal needs to get approved around the globe, regulators would be hard pressed to find objections to the marriage (as compared to a potential ARM/Intel hook up which would have set off alarm bells all over the place) .
We see no other bidder coming in to up the ante. At over 40 times earnings this is a very rich deal. Not many companies trade at these multiples and it would be hard to justify this deal on near term numbers. SoftBank is investing for the long run as it has done in the past. We see no one coming in looking for an immediately accretive transaction
The stock.....take the money and run....
Even for recent buyers, a quick 40% or better profit is nothing to sneeze at. There is no reason to hang around and wait for a better offer as it isn't going to come. Be happy with your huge upside surprise and move on.
Perhaps I would take my profit in ARMH and look for other semiconductor assets that may come into play as a result of this deal. Who else is in mobile or IOT....even already trading at a high price (cause its about to get higher).
I think a scarcity premium has to be building as there just aren't a lot of strategically critical semiconductor companies that are cheap. We think that the premium paid here supports a longer term valuation up tick for the semi group overall.
View attachment 17751
SoftBank of Japan has struck a deal to buy ARMH, ARM Holdings, for $32B. This is a whopping, eye popping 43% premium over Fridays close. In the press release they said they were only talking for the past two weeks so the deal obviously got very hot when the British Pound saw a huge devaluation after the Brexit fiasco.
While on the surface it seems very high priced, but when we compare it to other valuations, such as Intel, its not as crazy as you would think at first glance.
ARMH is the key to the IOT & mobile future....
Much as Intel was the key to the PC revolution so is ARM the key to the mobile and IOT revolution. When we look at the $32B buyout price versus todays market cap of Intel at $165B, you are comparing a market leader in mobile and IOT which has a lot of runway in front of it versus a larger competitor in a declining market that has been unable to make inroads in mobile trading at five times the market value.
While the business models are obviously very different, licensing versus manufacturing, you could also argue that with Samsung and TSMC around, that manufacturing chips is potentially an outdated market advantage. This seems to in fact be the case as Intel continues to push out its 10NM product while Samsung and TSMC push on.
The importance of being at the leading edge of manufacturing seems to be fading in the PC world.
What does SoftBank get???
SoftBank gets a very strategic positioning in the mobile and IOT markets and obviously compliments its Sprint position in mobile. Its doing so at the perfect time of the Yen versus the pound, with this deal perhaps being the first of what could be a long line of fallout from the Brexit vote. We would imagine they have locked in a currency hedge to insure the savings.
Softbank has already publicly stated its support of UK operations and said it will double employment there.
Their public support of doubling employment can give you some significant insight as to their view of the future potential of ARM's markets.
Intel, woulda, coulda, shoulda bought ARM instead???
There will be a ton of Monday morning quarterbacking going on, particularly in Santa Clara. We were one of those who would have strongly supported a purchase of ARM by Intel as it could have been a very interesting mix of old and new semi players and certainly would have instantly catapulted Intel to the top of mobile.
Given the failure of Intel on the mobile side and its pull back we had thought that the odds of a deal would have increased as Intel would have been forced to buy what it couldn't win in the market. Perhaps SoftBank sensed that Intel might rethink its mobile policy and consider ARM so we could also view this as a well timed preemptive move on the part of SoftBank.
Unfortunately for Intel this blocks what would have been a potential path to mobile relevance. Intel recently brought in new management on the mobile side that has made significant changes but it is yet unclear if this is too little too late and a re-arrangement of deck chairs. We think this move has to spur Intel management to look at other more mobile/IOT strategic acquisitions now that Altera is fully digested.
Semis are Sizzling....Semis Sexy Again???
This is the biggest Semiconductor M&A and clearly shows that there is a large need and a great interest for infrastructure and hardware and even though flappy birds and Uber are where the fun is , you still need hardware to run it on. Processors still need to be ever faster and consume less power. We saw this movie before in the 30 year+ history of the PC and the never ending quest continues in new mobile markets.
Aside from processors there is a lot of semiconductor infrastructure and components in many, many markets that have been overlooked for many years as Apps and mobile stole the spotlight. We think that this deal supports a broad re-awakening of semiconductor interest from investors and will likely spur another flurry of semiconductor M&A for yet another year.
Deal should easily get done...
We see no anti-competitive issue or product overlap. Although the deal needs to get approved around the globe, regulators would be hard pressed to find objections to the marriage (as compared to a potential ARM/Intel hook up which would have set off alarm bells all over the place) .
We see no other bidder coming in to up the ante. At over 40 times earnings this is a very rich deal. Not many companies trade at these multiples and it would be hard to justify this deal on near term numbers. SoftBank is investing for the long run as it has done in the past. We see no one coming in looking for an immediately accretive transaction
The stock.....take the money and run....
Even for recent buyers, a quick 40% or better profit is nothing to sneeze at. There is no reason to hang around and wait for a better offer as it isn't going to come. Be happy with your huge upside surprise and move on.
Perhaps I would take my profit in ARMH and look for other semiconductor assets that may come into play as a result of this deal. Who else is in mobile or IOT....even already trading at a high price (cause its about to get higher).
I think a scarcity premium has to be building as there just aren't a lot of strategically critical semiconductor companies that are cheap. We think that the premium paid here supports a longer term valuation up tick for the semi group overall.
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