Japan’s Softbank Bids For ARM – Good Or Bad News For UK Industry?

The first test of the brave new world of the UK existing successfully outside the EU has come sooner perhaps than we expected. Japanese tech giant Softbank has made a takeover bid for ARM Holdings. The firm was founded in 1990, is based in Cambridge, employs more than 3,000 people and designs microchips used in most smartphones, including Apple's and Samsung's. As the BBC reported:

The board of ARM is expected to recommend shareholders accept the Softbank offer - which provides a 43% premium on its closing market value of £16.8bn on Friday. Shares in the UK technology firm surged by 45% at the open of the London Stock Exchange to 1,742.85p per share, adding £7.56bn to ARM's market value.

From a procurement point of view, if you buy chips, this may not have too much impact. It does not lead to further concentration of the market, as Softbank are not in this business already. And Japanese firms historically have been relatively long-term owners of businesses, so it is not likely to be a “pump and dump” exercise where a firm is bought, costs are slashed, then it is sold on in a couple of years for twice the price but with poorer long-term prospects (which is how some private equity firms work).

But from a UK point of view, it is sad first of all that our largest independent, UK owned and based tech firm is going. It’s just … sad. Of course, the Prime Minister is presenting this as a big success, showing that the UK can attract foreign investment. But one can only assume she and her colleagues are putting a good face on it because they must know that there are major negatives – the potential loss of future corporation tax receipts as well as the issues in terms of strategic industrial policy issues. It is doubtful that France, Germany, the US or Japan itself would allow this sort of firm to be bought in this way.

Softbank are saying all the right things; that ARM will keep its headquarters in Cambridge and that it would at least double the number of its staff in the UK over the next five years. However, you might cast your mind back to the Kraft takeover of Cadburys. Kraft “promised” to reverse a decision by Cadbury to close a key factory at Somerdale, near Bristol. But within weeks of the takeover going through, Kraft announced it had changed its mind and would close the factory anyway. Four hundred jobs were lost. As the Guardian newspaper (not a lover of the current government, it should be said) commented;

So this is what Theresa May’s new industrial strategy looks like: the UK’s most successful technology company of the past 20 years is being sold to a big Japanese buyer while the chancellor whistles, on the basis of no detailed scrutiny, that the £24.3bn deal is a fine thing. Apparently it shows that “Britain has lost none of its allure to international investors” since the EU referendum.

Despite any bias from that paper, there is a good point here. What’s to stop Softbank saying in a year or two’s time, “you know, we think we will move most of this to Japan”. I’m sure there are scarce skills within the ARM workforce, so it may well be that a full withdrawal is unlikely. But what is the real commitment to retaining the UK as the heart of the business and keeping 3,000 staff, let alone doubling that?

The government has a difficult line to tread, even more so with Brexit on the horizon. The UK should not put up the shutters and become isolationist. Equally, we can’t be a soft touch for asset strippers or those who want access to our market without participating in the UK economy in a positive way. Our new Chancellor, Philip Hammond, is a sharp businessman (particular if you read the brilliant stories of his teenage mobile disco exploits) and he needs to get hard, legally binding commitments from Softbank or block the bid. It’s no excuse now to say “EU rules don’t allow that”, so getting that balance right in this first case post referendum is key. At the moment, it looks like an inglorious start to the new post-referendum UK industrial strategy.

 

 

 

Voices (2)

  1. Dave Mischief:

    I think this is terrible news for the UK it puts one of our foremost innovative companies into foreign ownership and allows them to be creative with their tax position so we have to accept a low tax take in future.

    ARM are already designing some of the best chips around and could raise extra capital at any time so I don’t see how selling out to a foreign company will be of a benefit apart from to those staff who hold company shares – and there will be a lot of them!

  2. Sam Unkim:

    Wouldn’t happen in France – EU or No EU

    http://www.autoritedelaconcurrence.fr/doc/ld_concentrations_juill13.pdf

    The list of the sensitive sectors concerned is broader for non-EU companies than for EU companies, but since a decree of May 2014, any activity which is essential to safeguard the country’s national interests in the fields of energy, water supply, transport, electronic communications, public health, or in relation to the operation of businesses, infrastructures, or facilities which are of “vital importance” to the country within the meaning of French law.

    including chocolate obvs..

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