When SoftBank is selling, why are you buying?(ft.com)
ft.com
When SoftBank is selling, why are you buying?
https://www.ft.com/content/db42248a-939b-4b83-b5f7-2de21e8ed5be
5 comments
I'm nobody, but feel pretty bullish about this IPO. ARM has such a massive brand, it has been screaming to be public for a pretty long time. And the tech market really wants a big hit, to kick things back into gear.
Can't read the article because of the paywall, but in answer to the title, SoftBank has not exactly shown itself to masterful at valuing companies to the point where it would be irrational to trade with them.
Ha I was going to say, isn’t SoftBank like the Jim Cramer of pre-IPO equities? I’d be more likely to bail out of something they wanted to buy.
Strong agree.
What’s the deal with archive and cloudflare?
This entire IPO is fascinating to me. Firstly, Softbank do seem to be somewhat of a forced seller, that should be really bad for the price. Secondly, ARM just don't seem to be in the dominant position they were when Softbank took them private in the first place.
But the really interesting element is that there are a handful of giants who might choose to come in and buy a stake just for strategic reasons - as listed in the article. But why? It's become very clear that there's no one who can buy arm due to anti-trust, the dream of Windows ARM has kind of died. Google is producing TPUs (not through ARM), Apple has moved a lot of it's silicon in house, MobilEye have done a great job on the self-driving side which ARM has arguably failed to get into. And if it is seriously true that these companies are going to take big stakes for strategic reasons, then why is Softbank even IPOing? They're only selling ~10%, at that scale you could easily see one or two of those tech giants taking the entire thing as a strategic move.
Plus it's a catch-22, if those companies do decide to take a strategic stake, there's almost no liquidity left for the real IPO, if they don't then buying at the IPO will be like trying catch a falling knife surely?
I know Softbank say they love ARM and they want to keep a big stake because they think it's really valuable. But really, it looks to me more like they over-valued it repeatedly. They paid over the odds to take it private at $32Bn in 2016 at a time where they were just spewing money. 4 years later they think they can offload it to Nvidia for $40Bn. Which is weird right? That's not a fantastic return at all. Then here we are in 2023, Softbank acquires the vision fund's stake of 25% valuing it at $64Bn which just seems absolutely crazy, so they bought 25% for $64Bn this year and now they want to sell 10% at somewhere close to $54Bn? Doesn't that seem pretty shady? Just one more example of Softbank getting into weird situations when matching their investments up against reality. My guess is they float a tiny amount because they're worried about downward pressure on the price, but they need to sell so they'll proceed to dump much more over time causing massive headwinds for the stock for the next few years.
But the really interesting element is that there are a handful of giants who might choose to come in and buy a stake just for strategic reasons - as listed in the article. But why? It's become very clear that there's no one who can buy arm due to anti-trust, the dream of Windows ARM has kind of died. Google is producing TPUs (not through ARM), Apple has moved a lot of it's silicon in house, MobilEye have done a great job on the self-driving side which ARM has arguably failed to get into. And if it is seriously true that these companies are going to take big stakes for strategic reasons, then why is Softbank even IPOing? They're only selling ~10%, at that scale you could easily see one or two of those tech giants taking the entire thing as a strategic move.
Plus it's a catch-22, if those companies do decide to take a strategic stake, there's almost no liquidity left for the real IPO, if they don't then buying at the IPO will be like trying catch a falling knife surely?
I know Softbank say they love ARM and they want to keep a big stake because they think it's really valuable. But really, it looks to me more like they over-valued it repeatedly. They paid over the odds to take it private at $32Bn in 2016 at a time where they were just spewing money. 4 years later they think they can offload it to Nvidia for $40Bn. Which is weird right? That's not a fantastic return at all. Then here we are in 2023, Softbank acquires the vision fund's stake of 25% valuing it at $64Bn which just seems absolutely crazy, so they bought 25% for $64Bn this year and now they want to sell 10% at somewhere close to $54Bn? Doesn't that seem pretty shady? Just one more example of Softbank getting into weird situations when matching their investments up against reality. My guess is they float a tiny amount because they're worried about downward pressure on the price, but they need to sell so they'll proceed to dump much more over time causing massive headwinds for the stock for the next few years.
> They paid over the odds to take it private at $32Bn in 2016 at a time where they were just spewing money. 4 years later they think they can offload it to Nvidia for $40Bn
That’s just over 6% compounded annually for a $32 billion hardware company in a 0% interest environment. Those aren’t software numbers but to me it seems like a good investment. And remember - Nvidia was absolutely happy to make the purchase and the industry basically locked that shit down with antitrust litigation threats. The valuation of the company within Nvidia is drastically higher because it gives Nvidia leverage over their competitors and a foothold into other markets (remember Tegra? Yeah, they got their lunch eaten by other ARM SoC vendors).
The real problem with ARM is that they let a lot of the value be captured by their partners who make chips off that design. This is good for the industry, but suddenly 10x more valuable for a single competitor if they manage to acquire it.
That’s just over 6% compounded annually for a $32 billion hardware company in a 0% interest environment. Those aren’t software numbers but to me it seems like a good investment. And remember - Nvidia was absolutely happy to make the purchase and the industry basically locked that shit down with antitrust litigation threats. The valuation of the company within Nvidia is drastically higher because it gives Nvidia leverage over their competitors and a foothold into other markets (remember Tegra? Yeah, they got their lunch eaten by other ARM SoC vendors).
The real problem with ARM is that they let a lot of the value be captured by their partners who make chips off that design. This is good for the industry, but suddenly 10x more valuable for a single competitor if they manage to acquire it.
Yes it was more than just thinking. However the firm commitment from NVidia was I think only $33.5 billion . The other $5billion was contingent on future performance (don't know the terms) and 1.5billion was for staff.
https://nvidianews.nvidia.com/news/nvidia-to-acquire-arm-for...
https://nvidianews.nvidia.com/news/nvidia-to-acquire-arm-for...
40Bn was a good price. But they didn't get it, and to then follow that up with various wildly inflated self-valuations in an era of interest rate rises...
The problem for this listing as I see it is that yearly profit Arm makes is about £600 million.
If you had £10 billion three years ago you'd be lucky to earn 100 million in interest. Today you can earn very near £600 million / year just in commercial paper on £10 billion of capital.
(Or if you retail, the UK government will pay 6.2% interest on up to £1million!)
If you had £10 billion three years ago you'd be lucky to earn 100 million in interest. Today you can earn very near £600 million / year just in commercial paper on £10 billion of capital.
(Or if you retail, the UK government will pay 6.2% interest on up to £1million!)
Between the various articles this week I learnt about the Kronos gurantee described in the F-1 (https://www.sec.gov/Archives/edgar/data/1973239/000119312523... Note 19).
As I understand it if Arm does not list by the end of September the company itself would be loaded with $8.5 billion debt gurantee. Not end of the world for the company but a big incentive to list now.