Introduction and Announcement:

Masayoshi Son, the speaker, starts by apologizing for his tardiness due to a meeting with the Chancellor of the UK. He announces SoftBank’s acquisition of a company he has admired for a decade. He expresses his excitement and happiness at making the acquisition public.

Financial Overview:

Masayoshi Son provides specifics about the acquisition. SoftBank will acquire 100% of ARM with an investment size of 24.3 billion pounds (~$31 billion and ~3.3 trillion yen). He breaks down the funding for the acquisition: two-thirds from SoftBank’s cash on hand and one-third as debt.

Funding Mechanism:

He details that the cash portion comes from their liquidated Alibaba assets. The remaining amount will be covered by a bridge loan, awaiting cash from the sale of Supercell stock in the upcoming months. SoftBank has used a bridge loan from a Japanese bank to meet the immediate cash requirements set by the UK Exchange Board for the announcement.

Transaction Terms:

The price per share for ARM is set at 1,700 pence. SoftBank received unanimous support from ARM’s board and senior management. The company will be privatized and will become part of SoftBank.

Regulatory and Timeline:

The process is expected to be quick and straightforward because SoftBank has no conflicts of interest with ARM. Minimal regulatory approvals are expected from each country’s government, expediting the transaction. Documentation and shareholder meetings are to follow shortly.

Conclusion:

Overall, the acquisition seems strategically and financially well-planned, with strong support from ARM’s board and senior management. The funding for the deal has been carefully arranged to ensure smooth execution.

Rationale for Acquisition:

Masayoshi Son outlines why SoftBank is acquiring ARM, pointing to the upcoming paradigm shift in the Internet of Things (IoT). He believes IoT presents a massive opportunity and that ARM, as a market leader, is well-positioned for this shift. SoftBank aims to make ARM a private company and invest strategically for long-term success.

Commitment to the UK:

Despite current political uncertainties in the UK, Masayoshi Son expresses strong confidence in the country’s future. Contrary to some businesses contemplating leaving the UK, SoftBank is committed to investing in the region. ARM will continue to be headquartered in Cambridge, where nearly half its engineers are based.

Organizational Plans:

Masayoshi Son states his intention to double ARM’s workforce in the UK over the next five years. He emphasizes that ARM will maintain its neutrality and independence. SoftBank respects the autonomy of its various businesses and will allow ARM to operate similarly.

Introduction to SoftBank:

Masayoshi Son gives a brief history of SoftBank, stating that it started as a PC software distribution company. He founded it himself without venture capital backing. SoftBank has diversified over the years, acquiring companies like Ziff Davis and Sprint, and pioneering technologies such as the robot Pepper.

SoftBank’s Financials:

Son provides some financial insights into SoftBank, including its revenue ($87 billion), EBITDA ($23 billion), and market cap ($68 billion). He divides SoftBank’s businesses into two arms: operational assets like SoftBank Mobile and Sprint, and investment assets where SoftBank may not have control but often is the largest shareholder.

Management Philosophy:

He concludes by detailing SoftBank’s management approach, stressing his respect for the autonomy of the companies within SoftBank’s portfolio. The group has synergies among its various businesses, and he’s involved in long-term strategy discussions with them.

The acquisition is portrayed as a long-term strategic move aligned with technology trends and also as a vote of confidence in the UK’s future.

Turnaround of Vodafone Japan:

Masayoshi Son details how SoftBank managed to turn around a struggling Vodafone Japan. Upon acquisition, SoftBank was able to improve the company’s EBIT (Earnings Before Interest and Taxes) by 10x over a span of 10 years. Despite initial skepticism about the acquisition, the results were very positive.

Scale and Profitability:

Son emphasizes the role of scale in the telecommunications business. SoftBank Mobile is number three in Japan and number four in the U.S. in terms of subscriber numbers. Despite this, SoftBank boasts the highest EBITDA margin (54%) over service revenue, surpassing global giants like Verizon and AT&T.

Investment Philosophy:

SoftBank’s approach to investment focuses on capitalizing on paradigm shifts in technology. Son explains that he invests in companies at the outset of significant industry changes rather than distressed assets. This strategy has yielded a 44% IRR (Internal Rate of Return), unparalleled in the investment business, according to Son.

ARM Deal and Confidence in Sprint:

Son reveals that SoftBank’s decision to invest in ARM for $30 billion was driven by confidence in the turnaround of Sprint. The acquisition of ARM is aimed at taking advantage of the burgeoning IoT (Internet of Things) market, which Son believes is the next big paradigm shift.

ARM’s Growing Influence:

ARM designs are widespread, featuring in more than 95% of smartphones sold and appearing increasingly in automobiles. Their chips are based on ARM-designed systems-on-chip (SoCs), and they shipped 15 billion units last year alone. Son sees this as a sign of ARM’s exponential growth and long-term sustainability.

Internet of Things and Security:

Son predicts that the IoT will interconnect not just mobile devices but virtually everything that has a semiconductor. This presents a growing need for secure systems, especially as the number of interconnected devices surpasses the global population.

Son concludes by emphasizing the need for security measures, especially as an increasing number of devices become interconnected via the Internet of Things.

Security Concerns in Connected Devices:

Masayoshi Son emphasizes the rising significance of security in an increasingly connected world. He highlights how conventional devices like Wi-Fi routers and printers are often overlooked for security upgrades, making them vulnerable targets for hackers.

ARM’s Security Features:

Son discusses ARM’s “Trust Zone,” a feature aimed at enhancing the security of the Internet of Things (IoT). He implies that as more devices get connected, security becomes even more crucial, and ARM is addressing this need.

Multi-core and Royalty Revenues:

ARM is benefiting from increased royalty revenue per chip, as many chips now contain multiple cores. This is particularly relevant in smartphones and automobiles.

Market Saturation and Growth:

Contrary to beliefs that the smartphone market is saturated, Son argues that the number of chips—and cores within those chips—is increasing. ARM is also diversifying its capabilities with products like the graphic chip Mali.

ARM’s Market Share:

Son mentions that ARM holds over 85% of the mobile computing market share when laptops and notebooks are included. In smartphones alone, ARM has over 95% of the market.

Business Forecast:

ARM anticipates sizable market opportunities in various segments, with mobile computing at $40 billion and enterprise infrastructure at $36 billion. Son believes this forecast is good and aims to support aggressive investments in technology and engineers.

ARM in IoT and Future Technologies:

Son projects that ARM’s embedded intelligence will be critical in IoT. He also sees considerable potential for ARM in server markets currently dominated by Intel, and exciting prospects in driverless automobiles.

Business Model and Partnerships:

ARM does not manufacture chips but collaborates with multiple partners who do, using ARM’s designs as a core. These partners add value by enhancing aspects like memory size and graphics capabilities.

Investment Stage:

Son considers the next five years to be crucial for investment in IoT, with significant opportunities appearing in the long-term future—20 to 30 years down the line.

Global Relationships and Neutrality:

Son ends by emphasizing that he will invest in ARM’s future while maintaining neutrality and fostering global relationships.

Strategic Significance for SoftBank:

Masayoshi Son, the primary speaker, states that SoftBank and ARM together will drive the next generation of technological paradigm shifts. The acquisition of ARM is of immense significance to SoftBank, representing the company’s first and most important core platform, making it a major bet for the company’s future.

Brexit & Timing:

Brexit had no influence on the acquisition decision. Masayoshi Son emphasizes that the driving factor behind the acquisition was not the currency devaluation due to Brexit but the opportunities in the emerging field of the Internet of Things (IoT). Son clarified that the timing was primarily determined by SoftBank’s financial capacity, noting that he had just recently acquired the necessary funds for the investment.

Due Diligence and Decision Speed:

The decision-making and due diligence process was completed remarkably quickly. The primary speaker met with ARM’s chairman for the first time only two weeks before the acquisition, during which all due diligence and funding were completed.

Currency and Valuation:

Another speaker points out that 95% of ARM’s revenues are in U.S. dollars, which suggests that currency valuation was not an opportunistic factor in the acquisition. This is further confirmed by Masayoshi Son, who observes that ARM’s share price had actually increased by 15% in the two weeks leading up to the deal, negating any advantage from currency depreciation.

Long-term Vision:

Masayoshi Son articulates that the acquisition is part of a larger vision to capitalize on opportunities in the Internet of Things (IoT) and mobile computing, sectors where ARM already has significant influence. He perceives this as the beginning of a new technological era and the investment in ARM is positioned to take advantage of this shift.

Business Alliances and Growth:

Son also mentions that prior to the acquisition, there had been talks with ARM’s CEOs about potential joint ventures and business alliances. The acquisition, therefore, seems to be an escalation of SoftBank’s ongoing interest in the company.

These insights collectively illustrate a strategic, long-term vision for the acquisition and deny any short-term opportunistic motives like capitalizing on Brexit-induced currency fluctuations.

Legal Commitment to UK Jobs:

Masayoshi Son states that SoftBank aims to double the number of ARM employees in the UK within the next five years. This intention will be converted into a legally binding commitment and submitted to the UK Takeover Panel. If SoftBank fails to meet this objective by the end of the fifth year, UK courts will have the right to enforce it. An independent supervisor will audit this commitment to ensure its fulfillment.

Investor and Shareholder Perspective:

When asked about the opinion of SoftBank’s investors regarding the acquisition of ARM, Masayoshi Son mentions that investors can decide for themselves by either selling or buying more shares of SoftBank. As a large shareholder of SoftBank himself, he believes the acquisition will add significant value to the company.

Bondholders and Financial Health:

Addressing concerns from bondholders, Masayoshi Son suggests that this acquisition is an attractive opportunity for bond investors. He states that SoftBank’s debt to EBITDA multiple is reasonable and has not significantly changed despite this acquisition. Son believes that SoftBank effectively has net zero debt when considering its strong free cash flow and public company shares.

Unanswered Growth Opportunities:

The transcript ends before Masayoshi Son could fully address a question about the potential growth opportunities for ARM revenues as part of the SoftBank Group.

Investment in IoT and Engineering:

Masayoshi Son discusses the huge potential he sees in the Internet of Things (IoT). By integrating ARM into the SoftBank Group, the aim is to make more aggressive investments in this technology. Unlike companies focused on short-term gains, ARM can now concentrate on long-term growth by hiring more engineers, particularly for IoT developments.

Market Expansion beyond Smartphones:

When questioned about ARM’s ability to dominate markets other than smartphones, Son explains that automobiles, particularly driverless cars, are becoming smarter and will require more integrated chips. ARM plans to enter this market aggressively, along with consumer electronics and server spaces.

Energy Efficiency in Data Centers:

Son mentions that SoftBank group operates multiple cloud servers, the biggest cost of which is electricity. ARM’s designs are energy-efficient, which Son believes could significantly reduce the operating costs of data centers.

Healthy Competition with Intel:

Responding to a question about Intel’s recent partnership with BMW, Son stresses that competition is good for technological progress. He expresses admiration for Intel and states that both Intel and ARM have unique strengths that will make for a healthy competitive landscape.

Government Interaction:

Masayoshi Son elaborated on his recent interactions with UK government officials, particularly the Prime Minister and the Chancellor. This was the first time he specifically discussed investing in ARM with the new government. Prior discussions with the previous government were more general, focusing on investing in the UK.

Investment Support:

Son claimed to have strong support from the UK government for his investment into ARM. This investment is seen as an endorsement of the future of the UK, especially given its complex political climate. He emphasizes that he is not merely talking about investment but is backing his words with “big size cash.”

Investment Specifics:

When asked about what the government officials inquired, Son mentioned his plans for doubling employment in the UK, retaining the ARM headquarters in the country, and enhancing the ecosystem. The UK government reportedly endorsed these plans.

Stakeholder Management:

Son has not yet spoken to ARM’s key management aside from the Chairman and CEO. He plans to meet them to communicate his commitment and passion for ARM’s future. Questions were raised about the commitment of ARM’s long-standing engineering team, and Son believes they share his vision for the company.

Customer and Regulatory Concerns:

As for reactions from companies that use ARM products (Samsung, Apple, etc.), Son could not yet comment as no discussions had been held. He did, however, state that SoftBank has no conflict of interest with these companies. On the regulatory side, Son does not anticipate major hurdles, citing SoftBank’s good relationships in China and the United States.

Brexit and Labor Force:

While Son said that Brexit was not a factor in his decision to invest, questions were raised about how the UK’s exit from the EU could affect the labor force. Son hopes that future government decisions won’t impact ARM’s ability to attract skilled engineers. Another speaker indicated that the expansion plans are not so large as to be severely affected by potential policy changes.

The conversation illuminates Son’s significant commitment to ARM and the UK, backed by both financial investment and a detailed vision for the company’s future.

Investment Strategy in the UK:

Masayoshi Son discussed SoftBank’s large investment in ARM, a UK-based technology company, highlighting that the deal was not influenced by the depreciation of the British pound due to Brexit. He stated that despite the weaker pound, ARM’s share price had risen, essentially balancing the purchase cost when converted to U.S. dollars.

Brexit’s Non-Impact on ARM Deal:

Son clarified that Brexit did not offer SoftBank an opportunistic advantage in purchasing ARM. He reiterated that the company’s decision to invest was independent of currency fluctuations and was not aimed at capitalizing on Brexit-induced market vulnerabilities.

Confidence in UK Market:

Son hinted that SoftBank’s investment could serve as a confidence booster for other potential investors eyeing the UK market. If SoftBank is willing to make a £24 billion investment, it might encourage other, smaller-scale investments in the country. However, he specified that SoftBank doesn’t have any additional investment plans in the UK for the immediate future.

Future Investments in the UK:

When asked about SoftBank’s future interest in the UK’s startup scene, particularly in fields like artificial intelligence and virtual reality, Son responded that although he hopes for more investments in the UK, there are no concrete plans beyond the ARM deal as of yet.

R&D Investment Boost:

Masayoshi Son highlights that one of the advantages of ARM becoming part of SoftBank is the opportunity for increased aggressiveness in investing in Research & Development (R&D) and engineers. As a public company, ARM had to maintain a careful balance with their bottom line, which sometimes limited their capacity for R&D investment. Under SoftBank’s private ownership, the company could be more flexible in scaling up these investments.

Transition to Service Orientation:

Son also notes that ARM has traditionally been a technology design house rather than a service-oriented company. With the growing importance of security in the Internet of Things (IoT) domain, Son believes SoftBank’s expertise in mobile internet infrastructure and service operations could add value to ARM.

Global Synergy:

Son further emphasizes that the partnership with SoftBank could provide ARM with synergistic benefits from SoftBank’s global operations in Japan, the US, and China. While he doesn’t outline specific plans, he suggests that these collaborative opportunities could be significant in shaping ARM’s future direction.

Lack of Specifics:

While Son expresses hope for future synergies and increased R&D investment, it’s important to note that he does not provide specific models or plans for these changes. The investment in ARM is framed as an opportunity for both companies, but the concrete steps to realize this vision remain undefined as of the conversation.