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City comment on ex-Arm chairman's sale 'regret'

Arm : Chip design firms sale to SoftBank last year created shock waves in Cambridge.
Arm : Chip design firms sale to SoftBank last year created shock waves in Cambridge.

Was former chairman of chip maker right to sell to SoftBank or not?

The chairman of NW Brown, Marcus Johnson, has urged the community not to judge former Arm chairman Stuart Chambers – who admitted this week that he regrets selling the world’s premier chip design firm to Japanese firm SoftBank – too harshly.

“I do regret having to sell Arm, yes,” Mr Chambers told The Times. “It had been hugely successful for 25 years and we very much thought there was the possibility of another 25.”

The interview provoked a storm of comment, largely hostile to the “short-termist” views of shareholders who accepted the offer which valued the Fulbourn-based firm at £24billion. The £17-a-share offer represented a premium of more than 40 per cent on Arm’s record closing price.

Mr Chambers. who has left the firm since the takeover last year, said that the offer was too good for shareholders to resist.

“Whatever they say, most investors were interested in a three-year time horizon,” he was quoted as saying. “There was one shareholder who claimed to be interested in the 10-year story and half their shareholding voted against the deal.”

Mr Johnson, chairman of the Cambridge wealth management firm NW Brown, backed Mr Chambers’ take on events.

“The answer is that I think he’s right in every respect,” he said. “If you’re running a quoted company and you get a good bid your shareholders would expect you to accept it.

“The fact is that if the management rejected the offer at the time the shareholders would say: ‘You’ve just stopped us making 40 per cent on our money’. No one is that good – it’s very very difficult for a management team to say no to a bid which is significantly more than anyone else is going to give you for some time. The shares had a very high rating but SoftBank wanted them more than anyone else in the world.”

Mr Johnson also contends that a significant chunk of the money raised from the sale has found its way back into the local economy.

“I said at the time that there are 100 reasonable shareholders living in and around East Anglia and they’d get £2bn from the proceeds of the sale,” he said.

“Think of what they’ve done with that money. There’s probably a dozen or more ventures going on now that otherwise wouldn’t have been going on. SoftBank gave a lot of very bright people the chance to go off and do their own thing and in 10 years’ time we’ll be seeing the fruits of that – you’ve got to see both sides of the coin. A lot of the money from the sale is going to be reinvested.”

At Price Bailey, the view was more cautious, with strategic corporate finance partner Simon Blake suggesting that for Mr Chambers to say “he wishes he hadn’t done the deal” is probably the outcome of “perception being more powerful than reality”.

“At the point of transaction,” Mr Blake said, “the perception would have been led by Softbank and their advisers inevitable positive attitude towards the business, as you would expect is always the case when it comes to making an offer attractive to a seller.

“It’s really easy to get caught up in the excitement and the easy analysis of a deal when a premium of 40 per cent over current share price is offered, if you don’t have a good view on what future shareholder value might be achieved. In other words, did the premium reflect the true opportunity value of the deal? Perhaps with hindsight, the reality is that there is such a good opportunity, the premium doesn’t sound enough.

“In fact, isn’t it usually true, at least for a non-trade buyer, that if an educated and sophisticated buyer is paying a premium, he is only doing so because he sees more opportunity in the future than the sellers do? That might be a result of the buyer having a greater risk appetite than the seller, or it might be that the sellers just don’t have a good enough view on the future.

“As dealmakers, we was always see a much greater willingness from buyers to forecast the future than sellers. Sellers are concerned not to get the future forecast wrong. Buyers know it’s a best estimate at the time.

“Perhaps Mr Chambers is disappointed that despite the premium, he gave the company away too cheaply. Perhaps it is because he has lost his job. Perhaps he has realised that the future does look brighter than he’s first anticipated. Alternatively, and despite the astronomical deal size, he just didn’t do the best deal he could have and he knows it. Whatever happens, we know it moved quickly and sometime speed can make the wrong outcomes happen.”

Arm’s shares dipped following the news, not helped by a fall in revenue. The second quarter of 2017 recorded earnings down to £82m from £165m the previous year, with the third quarter - to the end of September - down to £73m from £90m a year ago.

The firm blamed a hiring spree for the downturn.

After leaving Arm, Mr Chambers has enjoyed stints as chief executive at Pilkington, the glassmaker; chairman of Rexam, the cans group - both were sold to foreign buyers - and in June became the chairman at Anglo American, the owner of De Beers, the diamonds producer.

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