This isn’t the first time SoftBank has had a terrible, horrible, not good, very bad week. Indeed, even though the Japanese conglomerate is known for its extremes – whether it’s daring bets, internal feuds, degraded business relationships, or its ability to repeatedly bounce back from the brink – some recent developments could. prove particularly difficult, if not impossible, to overcome. .
The worst of them, apparently, is the lawsuit filed yesterday by the Federal Trade Commission to block the acquisition of Arm by chipmaker Nvidia, the UK company that licenses chip technology, over fears that the deal doesn’t give Nvidia too much control over computer technology.
“Tomorrow’s technologies depend on preserving today’s competitive and cutting-edge chip markets,” Holly Vedova, director of the agency’s competition office, said in a statement. “This proposed deal would distort Arm’s incentives in the chip markets and allow the combined company to unfairly undermine Nvidia’s competitors. “
The problem for SoftBank? A scuttled deal could fetch tens of billions of dollars for the company, which acquired Arm, now 21, in July 2016 for $ 32 billion before selling him to Nvidia in a deal in cash and stocks worth $ 40 billion. It’s even worse than it looks. Nvidia’s share price continued to rise so rapidly that, as Bloomberg noted earlier today, that $ 40 billion deal has since grown into a $ 74 billion deal.
It may not be a complete disaster for SoftBank. The deal is expected to undergo regulatory review as soon as it is announced, so SoftBank may have already considered this very likely possibility. Nvidia also says it will challenge the FTC lawsuit (although it seems unlikely that it will win against the agency). In addition, everything related to chips is in high demand right now.
Still, it’s unclear what Arm would be worth to another buyer. Meanwhile, if SoftBank decides to go public with the outfit instead, it could be worth almost half of what Nvidia paid for it, Bloomberg estimates, based on the average market cap to sales ratio of 9.9 times. that of the members of the Philadelphia Stock Exchange. The semiconductor index is currently benefiting.
In the meantime, SoftBank is also at risk of losing a key lieutenant for compensation. According to a New York Times article published this afternoon, Marcelo Claure, who is the COO of SoftBank and is widely seen as the right-hand man of SoftBank founder and CEO Masayoshi Son, has been locked in a battle. extended with the company on his compensation.
In fact, according to four people who spoke to The Times, he’s apparently ready to quit SoftBank if he doesn’t get what he wants – $ 2 billion in compensation over the next few years. SoftBank apparently thinks more of tens of millions of dollars at most.
When asked for more information, a SoftBank spokesperson sent us the following statement: “Softbank and Marcelo Claure are actively engaged in discussions about his role in the company and his compensation. Marcelo is a senior executive at Softbank who has contributed to many important initiatives since joining us in 2017. SoftBank does not intend to comment further on this.
It would be a major loss for SoftBank. Claure wears several hats for the company. He was WeWork’s interim CEO after he ousted Adam Neumann for example, and helped recruit current CEO Sandeep Mathrani. Claure also leads two other organizational charts: his diversity-focused SoftBank Opportunity Fund and his SoftBank Latin America Fund vehicles, which are the source of most of the company’s oversized bets these days. (We spoke with Claure about SoftBank’s aggressive Latin America strategy at Disrupt in September; see below.)
Claure would also be among the most prominent in a very long series of departures from the cabinet. Earlier this month, Bloomberg noted that SoftBank’s “eccentric” approach to compensation – it pays significantly less than its similar-sized competitors – has helped precipitate the resignations of seven managing partners since March of the last year, with his only senior managing partner, Deep Nishar, announcing last week that he was joining General Catalyst as managing director.
SoftBank has recovered from the worst, but it looks particularly vulnerable at the moment. As recently as last week, Son revealed that SoftBank Group had lost more than $ 50 billion due to Beijing’s tech crackdown and that its shares were down sharply. With these two more recent and very public developments, it will be all the more difficult to strengthen investor confidence in the company.