By Dominique Jacquet

Softbank’s price reacted positively to the announcement of the sale of its 100% subsidiary Arm, a leading electronics company, bought by Nvidia for $ 40 billion.

The last few months have seen a recovery in the stock market value of the conglomerate created and led by Masayoshi Son to whom we dedicated our January 2020 vidcast devoted to the WeWork “rescue”. Starting from a low point in March 2020, the price has practically doubled in 6 months, but remains around 15% of its high of 2018.

Arm was bought by Softbank in September 2016 for $ 32 billion (3.3 trillion yen). At first glance, this figure could suggest a return on investment of 25% (40 – 32 = 8, compared to 32 for math!). Reality demands a more precise reading. The 40 billion figure includes a distribution of shares of 1.5 billion to key Arm employees to motivate them to stay within the company (when human capital becomes financial capital!) and an earn-out of 5 billion conditional on future results. The guaranteed and net selling price therefore amounts to 33.5 billion, or a gain of 5% … Over the same period (September 2016 – October 2020), the Nasdaq more than doubled. As the Yen lost 5% over the period (from 100 to 105 JPY for one USD), the gain expressed in yen, Softbank’s working currency, increases from 5% to 10% …

Beyond the simple financial calculation, what about Softbank’s industrial ambition? In the vidcast, I quoted the firm’s forceful slogan: bring brain computer to life. Clearly, Arm was one of the spearheads of this project, but will leave (subject to approval by the competition authorities) the industrial perimeter of the financial holding company to integrate Nvidia.

The latter is worth 350 billion dollars on the stock market, which represents a hundred years of profits. The acquisition of Arm presents technological synergies hailed by investors and the price of Nvidia has moved up. Interestingly, Nvidia was one of Softbank’s investments! When Softbank acquired about 5% of Nvidia for $ 4 billion at a price of $ 105 per share, Nvidia’s market cap was $ 80 billion and the stock market was applauding its recent tripling! Worried about a possible turnaround, Softbank sold its stake in late 2018 by securing the sale price through a collar, a synthetic structure that allows the value of an asset to be locked in a tunnel. Beautiful financial operation which had brought in nearly 3 billion dollars in total. But, if the firm had retained its participation in a long-term industrial logic, this participation would be today worth more than 17 billion dollars, half of the sale price of Arm …

In the January vidcast, we previously praised Masayoshi Son’s financial virtuosity, but questioned his industrial talent. The sale of Arm does not remove this question.