SoftBank in talks to acquire Vision Fund’s 25% stake in Arm – sources.

By Echo Wang and Anirban⁣ Sen

NEW YORK⁣ (Reuters) – SoftBank Group Corp is in talks to ​acquire the 25% stake in‍ Arm Ltd it does not directly own from Vision Fund 1 (VF1), a $100 ⁣billion investment ​fund it raised ⁣in 2017, according to people ⁢familiar with the matter, potentially delivering a win for ​investors who have waited years for strong returns.

The discussions come as ⁢Softbank is preparing to⁤ list‍ the chip designer on⁤ Nasdaq next month at a valuation of $60 billion ​to ⁤$70 billion.

If the negotiations ​lead to a deal, ‌the ⁣Japanese tech investor would be delivering a major, ⁢immediate windfall ⁢to VF1‍ investors, including Saudi Arabia’s Public Investment Fund and Abu Dhabi’s ‌Mubadala. They nursed losses after many of Softbank’s bets on startups such as workspace provider WeWork Inc and ride-sharing firm Didi ‍Global⁤ soured.⁣

The ⁤alternative‍ — letting VF1 sell its Arm shares in the stock market over time following the​ initial public offering (IPO)⁣ — would typically take at ‍least one to ‍two​ years given the size of the stake. It would also be more risky⁣ for the fund’s ‌investors since it is possible that ​Arm’s⁣ shares could drop‍ following the IPO.

VF1 returned to profitability ⁣in the latest quarter‌ thanks ⁣to investors’ excitement around ⁣artificial intelligence boosting the value of some of the startups in which it invested. Yet⁤ its previous losses prevented SoftBank ⁣from securing outside investors for Vision Fund​ 2 (VF2), whose $56 billion in capital‌ came ⁣from⁢ the ⁤Japanese firm and its management, including Chief Executive Masayoshi Son.

A big windfall for VF1 investors could boost SoftBank’s chances of⁣ tapping them for capital again ⁢in the ‍future. ⁣It has ⁣been considering raising a third Vision Fund.

Son, who ‌has hired​ investment bank Raine Group‍ to advise ‍SoftBank on the negotiations, has‍ recused himself from ⁣VF1’s deliberations ​on the matter so that the fund makes a decision‌ independently in ‌the ‍interest of its investors,‌ the sources said.

VF1’s investment⁤ committee and SoftBank’s investment ⁣advisory ⁣board, attended by fund investor representatives, are handling the negotiations,⁤ one of the ⁢sources‌ added.

The ‍exact ⁤valuation ⁣for Arm that⁤ the two sides are discussing for‍ their transaction⁣ could not be learned, and the sources cautioned that it is possible that no agreement⁣ will be ⁤reached.‍

If a deal ⁢is ​inked, SoftBank would be selling fewer ​Arm shares ‍in the IPO and​ would be likely‌ retaining a stake of between 85% and 90%, according to the sources,​ who⁤ requested anonymity because the negotiations are confidential.⁣

SoftBank, VF1 and Arm declined to comment. Raine did not immediately respond to requests⁣ for comment.

CORNERSTONE ‌INVESTORS

Arm’s IPO would be a boon not⁤ just for ⁢VF1 ⁣but also for SoftBank, which reported its third consecutive quarterly loss last week. It ⁤was hit by declines in the valuations of ​major holdings such‍ as Chinese e-commerce firm ⁣Alibaba Group, German telecommunications company Deutsche ‌Telekom and U.S. wireless carrier T-Mobile ⁢U.S..

SoftBank, which took Arm private for $32 billion⁤ in 2016, sold a⁣ 25% stake ⁢in the company to VF1⁢ for $8 billion⁤ in​ 2017. SoftBank has also ⁣been in ‌talks ⁤with several technology companies ‍about bringing ‌them⁣ onboard as cornerstone‍ investors in Arm ahead of its ‌IPO, including Amazon.com​ Inc, Reuters has reported.

SoftBank last week said VF1 delivered a gain of $12.4 billion on $89.6 billion of investments, while VF2 carried a ⁤$18.6​ billion loss on $51.8 billion of investments.

The investment giant has been in “defense mode”‌ since ‍May 2022‍ after technology⁤ valuations crashed amid a rise in interest rates and economic‍ uncertainty. But in June, ​Son ​said he was planning to shift to⁣ “offence” mode amid excitement over ‌advances in artificial intelligence.

SoftBank began preparations for an IPO of Arm ⁤after a deal to sell‌ the company to Nvidia Corp for $40 billion collapsed last year over‍ objections from U.S.⁣ and European antitrust regulators. Arm’s IPO could now raise up to $10 billion.

Arm’s business ​has fared better than the broader chip industry because ⁣it licenses ‍designs rather than paying ⁣to make processing systems itself. Its technology has become ubiquitous‍ in smart phones and data centers, delivering lucrative royalty payments.​ Yet demand for⁢ smart phones has weakened ‌lately,⁢ weighing on Arm’s‍ earnings.

(Reporting by Echo ⁤Wang and Anirban Sen in New York; Editing by Greg Roumeliotis‍ and⁢ Mark Porter)

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