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No one has seemed to notice the following two things: "To pave the way for the deal, SoftBank reversed an earlier decision to strip out an internet-of-things b

No one has seemed to notice the following two things: "To pave the way for the deal, SoftBank reversed an earlier decision to strip out an internet-of-things business from Arm and transfer it to a new company under its control. That would have stripped Arm of what was meant to be the high-growth engine that would power it into a 5G-connected future. One person said that SoftBank made the decision because it would have put it in conflict with commitments made to the U.K. over Arm, which were agreed at the time of the 2016 deal to appease the government." (from https://arstechnica.com/gadgets/2020/09/nvidia-reportedly-to-acquire-arm-holdings-from-softbank-for-40-billion/ https://arstechnica.com/gadgets/2020/09/nvidia-reportedly-to... ) and "The transaction does not include Arm’s IoT Services Group." (nvidia news.) which appear to contradict each other. I'm not sure about the significance of this. I would have guessed Nvidia would have wanted the IoT group to remain. Also, to first order, when a company issues stock to purchase another corporation, that cost is essentially "free" since the value of the corporation increases. In other words, Nvidia is essentially paying $12 billion in cash for ARM up front, and that's all. (The extra $5B in cash or stock depends on financial performance of ARM, and thus is a second-order effect.)

walterbell 6y ago
There were two separate IoT business units: Platform (https://pelion.com https://pelion.com) and Data (https://www.treasuredata.com/ https://www.treasuredata.com/). The Platform unit fits the Segars post-acquisition comment about end-to-end IoT software architecture, https://news.ycombinator.com/item?id=24465005 https://news.ycombinator.com/item?id=24465005 > One person close to the talks said that Nvidia would make commitments to the UK government over Arm’s future in Britain, where opposition politicians have recently insisted that any potential deal must safeguard British jobs. So the deal has already been influenced by one regulator. That should encourage other regulators. > SoftBank will remain committed to Arm’s long-term success through its ownership stake in NVIDIA, expected to be under 10 percent. Why is this stake necessary?
- xbmcuser 6y ago
  Are they getting 10% of nvidia or keeping 10% of Arm
  - walterbell 6y ago
    10% of Arm division of Nvidia, https://www.forbes.com/sites/patrickmoorhead/2020/09/13/its-officialnvidia-acquires-arm-for-40b-to-create-what-could-be-a-computing-juggernaut/ https://www.forbes.com/sites/patrickmoorhead/2020/09/13/its-.... > Softbank ownership: Will keep 10% stake in new entity That would mean Nvidia acquired 90% of Arm for $40B, i.e. Arm was valued at $44B. Is Softbank invested in Arm licensees, who may benefit from Softbank influence? Alternately, which Arm licensees would bid in a future auction of Softbank's 10% stake of Nvidia's Arm division?
  - btown 6y ago
    From the press release directly, it appears to be 10% of NVIDIA: https://nvidianews.nvidia.com/news/nvidia-to-acquire-arm-for-40-billion-creating-worlds-premier-computing-company-for-the-age-of-ai?nvid=nv-int-cwmfg-31513#cid=gnl_nv-int-cwmfg_en-us https://nvidianews.nvidia.com/news/nvidia-to-acquire-arm-for... > Under the terms of the transaction, which has been approved by the boards of directors of NVIDIA, SBG and Arm, NVIDIA will pay to SoftBank a total of $21.5 billion in NVIDIA common stock and $12 billion in cash, which includes $2 billion payable at signing. The number of NVIDIA shares to be issued at closing is 44.3 million, determined using the average closing price of NVIDIA common stock for the last 30 trading days. Additionally, SoftBank may receive up to $5 billion in cash or common stock under an earn-out construct, subject to satisfaction of specific financial performance targets by Arm. Since NVIDIA currently has 617 million shares outstanding, if the earn-out were to be fully in common stock, this would bring Softbank to 8.8% of NVIDIA from this transaction alone (plus anything they already have in NVIDIA as public-market investors). (I believe that the Forbes analysis in the sibling comment is mistaken in describing this as a "10% stake in new entity" - no new entity is mentioned in the press release itself.)
    - walterbell 6y ago
      > no new entity is mentioned in the press release itself The Forbes article is based on a joint interview today with the CEOs of Arm and Nvidia, who could have provided more detail than the press release, specifically: > Arm operating structure: Arm will operate as an NVIDIA division This level of detail can be confirmed during the analyst call on Monday. Operating as a separate division would help assuage concerns about Arm's independence. The press release says: > Arm will remain headquartered in Cambridge ... Arm’s intellectual property will remain registered in the U.K. Those statements are both consistent with Arm operating as a UK-domiciled business that is owned by Nvidia.
- boulos 6y ago
  > Why is this stake necessary? Edit: it’s not necessary/a requirement. They’re noting that after the transaction, SoftBank will still fall under the 10% ownership threshold that requires more reporting from the SEC [1]: > Section 16 of the Exchange Act applies to an SEC reporting company's directors and officers, as well as shareholders who own more than 10% of a class of the company's equity securities registered under the Exchange Act. The rules under Section 16 require these “insiders” to report most of their transactions involving the company's equity securities to the SEC within two business days on Forms 3, 4 or 5. [1] https://www.sec.gov/smallbusiness/goingpublic/officersanddirectors https://www.sec.gov/smallbusiness/goingpublic/officersanddir...
- oxfordmale 6y ago
  The UK government never learns. Kraft made similar promises when buying Cadbury regarding jobs,but quietly reneged on them over time. The Kraft CEO was asked to show up before an UK parliament committee, but of course declined, and that was the end of the story.
  - LoSboccacc 6y ago
    it's all posturing unless the government makes the company to agree to punitive severance packages to be put in an escrow account to be released to the company after 20 years or to the people if fired before that.
  - djmobley 6y ago
    Except the Cadbury-Kraft debacle led to major reforms in how the UK regulates foreign takeovers. In the case of Arm, the guarantees provided back in 2016 were legally binding, which is why we’re here, four years and another acquisition later, with Nvidia now eager to demonstrate it is standing by those commitments. Maybe in this particular instance they did learn something?
    - bencollier49 6y ago
      They should learn to prevent the sale, period. Promises to retain some jobs (for ever? What happens if profits decline? What happens if the core tech is sold and ARM becomes a shell? Do the rules still apply?) address a tiny fraction of the problems presented by the sale of one of our core national tech companies.
      - tomalpha 6y ago
        I would have liked to see ARM remain owned in the UK. I think it's proven itself capable of innovation and organic growth on its own. But how can we evaluate the whether that will continue? What if ARM is not sold, and then (for whatever reason) stagnates, doesn't innovate, gets overtaken in some way, and enters gradual decline? Perhaps that's unlikely, but prevent the sale, period is feels too absolute.
- nautilus12 6y ago
  Does this mean they are or aren't buying treasure data? What would happen if not?
  - walterbell 6y ago
    That would be up to Softbank.
    - nautilus12 6y ago
      So they aren't buying treasure data then?
      - walterbell 6y ago
        Looks like they continue as independent company, owned by Softbank, https://blog.treasuredata.com/blog/2020/09/14/nvidia-to-acquire-arm/ https://blog.treasuredata.com/blog/2020/09/14/nvidia-to-acqu... > The transaction does not include Arm’s IoT Services Group, which is made up of Treasure Data and Arm’s IoT Platform business. > Back in July, Arm announced a proposed transfer to separate Treasure Data from its core semiconductor IP licensing business, enabling Treasure Data to operate as an independent business. That separation is on track and will be completed before the close of the NVIDIA transaction. Most importantly, you should not see any disruption in our service or support as a result of this news.
pathseeker 6y ago
>Also, to first order, when a company issues stock to purchase another corporation, that cost is essentially "free" since the value of the corporation increases. This isn't correct. If investors thing Nvidia overpaid, its share price will decline. There are many examples of acquiring companies losing significant value on announcements to buy other companies even in pure stock deals.
- smabie 6y ago
  It's rare for the acquiring companies stock to not decline, regardless of whether the market thinks they overpaid.
  - inlined 6y ago
    I worked at Parse when it was bought by Facebook. The day the news broke, Facebook’s market cap grew by multiples of the acquisition price. I remember being gobsmacked that Facebook effectively got paid to buy us.
    - rocqua 6y ago
      Unless Facebook itself actually issued stock at the new price, Facebook did not get paid. It were the Facebook shareholders that got paid. Really, it shows that the market valued Parse much more than the cash it cost Facebook. If Parse was bought with stock instead of cash, that's almost cooler. Since it allowed Parse to capture more of the surplus value they created. (Since the stock price popped).
    - jannes 6y ago
      Keep in mind that market cap is a fictional aggregate. It does not represent the real price that all shares could be sold for.
    - smabie 6y ago
      More sophisticated analysis is required. You should look at the beta of Facebook at the time and determine whether the market reacted positively to the acquisition, or if the move was inline with Facebook's exposure to the market
manquer 6y ago
It is not "free", it means current shareholders of Nvidia are paying for the remaining money. Their stock is diluted on fresh issue of shares.[1] The $12B comes from Nvidia the company, the remaining money comes from Nvidia's shareholders directly. [1] Only if the valuation of ARM is "worth it" the fresh issue of shares will not cost the current shareholders anything. This is rarely the case , if Nvida overvalued(or less likely undervalued) the deal then current shareholders are giving more than they got for it.
- haten 6y ago
  Yes
- bananaface 6y ago
  And note that the $12B is also owned by Nvidia's shareholders (they own the company which owns the cash), so they're paying for that too. It's just different forms of shareholder assets being traded for other assets, by the shareholders (or rather, their majority vote).
  - manquer 6y ago
    Effectively all of it is funded by the shareholders who "own" the corporation. In the current example if the cash is coming from a debt instrument is it not bank funding it now? it is typically about who is fronting the money now, it could be your bank making loans, or from cash reserves you have, fresh stock issue, selling another asset, or even the target's bank as in the case of LBO. The shareholders always end up paying for it eventually in some form or other. Differentiating it by the current source helps understand the deal structure and risks better.
    - bananaface 6y ago
      Absolutely. I was just noting it for anyone reading.
    - pottertheotter 6y ago
      It's still the shareholders even if debt financing is used. The shareholders, through the company, have to pay off the debt. It increases the risk of bankruptcy. When doing a deal, it comes down to price and source of funds. Changing either can drastically change how good or bad the deal is.

walterbell 6y ago

There were two separate IoT business units: Platform (https://pelion.com https://pelion.com) and Data (https://www.treasuredata.com/ https://www.treasuredata.com/). The Platform unit fits the Segars post-acquisition comment about end-to-end IoT software architecture, https://news.ycombinator.com/item?id=24465005 https://news.ycombinator.com/item?id=24465005 > One person close to the talks said that Nvidia would make commitments to the UK government over Arm’s future in Britain, where opposition politicians have recently insisted that any potential deal must safeguard British jobs. So the deal has already been influenced by one regulator. That should encourage other regulators. > SoftBank will remain committed to Arm’s long-term success through its ownership stake in NVIDIA, expected to be under 10 percent. Why is this stake necessary?

xbmcuser 6y ago
Are they getting 10% of nvidia or keeping 10% of Arm
- walterbell 6y ago
  10% of Arm division of Nvidia, https://www.forbes.com/sites/patrickmoorhead/2020/09/13/its-officialnvidia-acquires-arm-for-40b-to-create-what-could-be-a-computing-juggernaut/ https://www.forbes.com/sites/patrickmoorhead/2020/09/13/its-.... > Softbank ownership: Will keep 10% stake in new entity That would mean Nvidia acquired 90% of Arm for $40B, i.e. Arm was valued at $44B. Is Softbank invested in Arm licensees, who may benefit from Softbank influence? Alternately, which Arm licensees would bid in a future auction of Softbank's 10% stake of Nvidia's Arm division?
- btown 6y ago
  From the press release directly, it appears to be 10% of NVIDIA: https://nvidianews.nvidia.com/news/nvidia-to-acquire-arm-for-40-billion-creating-worlds-premier-computing-company-for-the-age-of-ai?nvid=nv-int-cwmfg-31513#cid=gnl_nv-int-cwmfg_en-us https://nvidianews.nvidia.com/news/nvidia-to-acquire-arm-for... > Under the terms of the transaction, which has been approved by the boards of directors of NVIDIA, SBG and Arm, NVIDIA will pay to SoftBank a total of $21.5 billion in NVIDIA common stock and $12 billion in cash, which includes $2 billion payable at signing. The number of NVIDIA shares to be issued at closing is 44.3 million, determined using the average closing price of NVIDIA common stock for the last 30 trading days. Additionally, SoftBank may receive up to $5 billion in cash or common stock under an earn-out construct, subject to satisfaction of specific financial performance targets by Arm. Since NVIDIA currently has 617 million shares outstanding, if the earn-out were to be fully in common stock, this would bring Softbank to 8.8% of NVIDIA from this transaction alone (plus anything they already have in NVIDIA as public-market investors). (I believe that the Forbes analysis in the sibling comment is mistaken in describing this as a "10% stake in new entity" - no new entity is mentioned in the press release itself.)
  - walterbell 6y ago
    > no new entity is mentioned in the press release itself The Forbes article is based on a joint interview today with the CEOs of Arm and Nvidia, who could have provided more detail than the press release, specifically: > Arm operating structure: Arm will operate as an NVIDIA division This level of detail can be confirmed during the analyst call on Monday. Operating as a separate division would help assuage concerns about Arm's independence. The press release says: > Arm will remain headquartered in Cambridge ... Arm’s intellectual property will remain registered in the U.K. Those statements are both consistent with Arm operating as a UK-domiciled business that is owned by Nvidia.
boulos 6y ago
> Why is this stake necessary? Edit: it’s not necessary/a requirement. They’re noting that after the transaction, SoftBank will still fall under the 10% ownership threshold that requires more reporting from the SEC [1]: > Section 16 of the Exchange Act applies to an SEC reporting company's directors and officers, as well as shareholders who own more than 10% of a class of the company's equity securities registered under the Exchange Act. The rules under Section 16 require these “insiders” to report most of their transactions involving the company's equity securities to the SEC within two business days on Forms 3, 4 or 5. [1] https://www.sec.gov/smallbusiness/goingpublic/officersanddirectors https://www.sec.gov/smallbusiness/goingpublic/officersanddir...
oxfordmale 6y ago
The UK government never learns. Kraft made similar promises when buying Cadbury regarding jobs,but quietly reneged on them over time. The Kraft CEO was asked to show up before an UK parliament committee, but of course declined, and that was the end of the story.
- LoSboccacc 6y ago
  it's all posturing unless the government makes the company to agree to punitive severance packages to be put in an escrow account to be released to the company after 20 years or to the people if fired before that.
- djmobley 6y ago
  Except the Cadbury-Kraft debacle led to major reforms in how the UK regulates foreign takeovers. In the case of Arm, the guarantees provided back in 2016 were legally binding, which is why we’re here, four years and another acquisition later, with Nvidia now eager to demonstrate it is standing by those commitments. Maybe in this particular instance they did learn something?
  - bencollier49 6y ago
    They should learn to prevent the sale, period. Promises to retain some jobs (for ever? What happens if profits decline? What happens if the core tech is sold and ARM becomes a shell? Do the rules still apply?) address a tiny fraction of the problems presented by the sale of one of our core national tech companies.
    - tomalpha 6y ago
      I would have liked to see ARM remain owned in the UK. I think it's proven itself capable of innovation and organic growth on its own. But how can we evaluate the whether that will continue? What if ARM is not sold, and then (for whatever reason) stagnates, doesn't innovate, gets overtaken in some way, and enters gradual decline? Perhaps that's unlikely, but prevent the sale, period is feels too absolute.
nautilus12 6y ago
Does this mean they are or aren't buying treasure data? What would happen if not?
- walterbell 6y ago
  That would be up to Softbank.
  - nautilus12 6y ago
    So they aren't buying treasure data then?
    - walterbell 6y ago
      Looks like they continue as independent company, owned by Softbank, https://blog.treasuredata.com/blog/2020/09/14/nvidia-to-acquire-arm/ https://blog.treasuredata.com/blog/2020/09/14/nvidia-to-acqu... > The transaction does not include Arm’s IoT Services Group, which is made up of Treasure Data and Arm’s IoT Platform business. > Back in July, Arm announced a proposed transfer to separate Treasure Data from its core semiconductor IP licensing business, enabling Treasure Data to operate as an independent business. That separation is on track and will be completed before the close of the NVIDIA transaction. Most importantly, you should not see any disruption in our service or support as a result of this news.

pathseeker 6y ago

>Also, to first order, when a company issues stock to purchase another corporation, that cost is essentially "free" since the value of the corporation increases. This isn't correct. If investors thing Nvidia overpaid, its share price will decline. There are many examples of acquiring companies losing significant value on announcements to buy other companies even in pure stock deals.

smabie 6y ago
It's rare for the acquiring companies stock to not decline, regardless of whether the market thinks they overpaid.
- inlined 6y ago
  I worked at Parse when it was bought by Facebook. The day the news broke, Facebook’s market cap grew by multiples of the acquisition price. I remember being gobsmacked that Facebook effectively got paid to buy us.
  - rocqua 6y ago
    Unless Facebook itself actually issued stock at the new price, Facebook did not get paid. It were the Facebook shareholders that got paid. Really, it shows that the market valued Parse much more than the cash it cost Facebook. If Parse was bought with stock instead of cash, that's almost cooler. Since it allowed Parse to capture more of the surplus value they created. (Since the stock price popped).
  - jannes 6y ago
    Keep in mind that market cap is a fictional aggregate. It does not represent the real price that all shares could be sold for.
  - smabie 6y ago
    More sophisticated analysis is required. You should look at the beta of Facebook at the time and determine whether the market reacted positively to the acquisition, or if the move was inline with Facebook's exposure to the market

manquer 6y ago

It is not "free", it means current shareholders of Nvidia are paying for the remaining money. Their stock is diluted on fresh issue of shares.[1] The $12B comes from Nvidia the company, the remaining money comes from Nvidia's shareholders directly. [1] Only if the valuation of ARM is "worth it" the fresh issue of shares will not cost the current shareholders anything. This is rarely the case , if Nvida overvalued(or less likely undervalued) the deal then current shareholders are giving more than they got for it.

haten 6y ago
Yes
bananaface 6y ago
And note that the $12B is also owned by Nvidia's shareholders (they own the company which owns the cash), so they're paying for that too. It's just different forms of shareholder assets being traded for other assets, by the shareholders (or rather, their majority vote).
- manquer 6y ago
  Effectively all of it is funded by the shareholders who "own" the corporation. In the current example if the cash is coming from a debt instrument is it not bank funding it now? it is typically about who is fronting the money now, it could be your bank making loans, or from cash reserves you have, fresh stock issue, selling another asset, or even the target's bank as in the case of LBO. The shareholders always end up paying for it eventually in some form or other. Differentiating it by the current source helps understand the deal structure and risks better.
  - bananaface 6y ago
    Absolutely. I was just noting it for anyone reading.
  - pottertheotter 6y ago
    It's still the shareholders even if debt financing is used. The shareholders, through the company, have to pay off the debt. It increases the risk of bankruptcy. When doing a deal, it comes down to price and source of funds. Changing either can drastically change how good or bad the deal is.