When ARM Holdings first launched in late 90s the company’s business model — licensing chip designs without actually building any chips — was considered exotic. And ARM spent a lot of energy convincing people it would work.
Apparently, it worked. This morning, SoftBank offered £24.3 billion ($32 billion) to acquire ARM.
It’s the latest in a series of massive chip-industry acquisitions. Last year, Avago bought Broadcom ($37 billion), Intel acquired Altera ($16.7 billion), and NXP Semiconductors acquired Freescale ($11.8 billion).
SoftBank’s offer — equating to £17 ($22.62) per share — is a 43 percent premium over ARM’s closing price as of Friday. In fact, as ARM points out, SoftBank is offering a 41.1 percent premium over ARM’s all-time high, attained in March 2015.
ARM shares dutifully rose 41 percent to £16.77 today on the London Stock Exchange.
In the U.S., over-the-counter shares of SoftBank were down 6 percent at $26.80. As The Wall Street Journal points out, the ARM purchase would add to SoftBank’s already sizable debt, amassed from previous deals such as the 2013 acquisition of Sprint.
The companies have set a Nov. 17 deadline for closing the deal.
The deal would net SoftBank a powerful player in the smartphone industry, as ARM’s chips are ubiquitous there. ARM’s reputation for low power also makes it a likely contender as the Internet of Things (IoT) emerges. ARM’s chips would mostly go into the “things” side, competing against Intel, which has some deep IoT ambitions of its own (and the growing pains to show for it).
What’s less clear is what SoftBank might do with ARM’s 64-bit processors, which target the high-end servers that populate data centers. Think of that as the “Internet” side of IoT. Here, ARM is still a new challenger, as its chipmaker partners have only recently begun producing processors based on this architecture.
The semiconductor industry is experiencing a pendulum swing toward massive, consolidated companies. The cost of designing and manufacturing chips is partly to blame, especially when it comes to high-end devices. Companies need massive volume in order to justify building these chips, and larger entities will supposedly have an easier time reaching that volume.