TOKYO CALLING

The $32 billion Japanese takeover of a British tech giant is not a “big vote of confidence” in post-Brexit Britain

Obsession
Brexit
Obsession
Brexit

For those nervous about Britain’s appeal to foreign investors after the country voted last month to leave the European Union, the deal could not have come at a better time. Japan’s SoftBank is offering £24.3 billion ($32.2 billion) in cash to take over the Cambridge-based chipmaker ARM.

According to British chancellor Philip Hammond, appointed last week by the new prime minister, Theresa May, the deal would be the largest single investment from Asia into the UK. It is a “big vote of confidence in British business,” he said.

Is it? Although ARM is based in the UK, and a member of the London market’s blue-chip FTSE 100 index, it generates only 1% of its revenue in Britain. Only a tenth of the company’s sales come from Europe as a whole, so intra-EU trade is not so important for the group, either.

What’s more, some 95% of ARM’s invoices are in dollars. Thus, the pound’s tumble after the Brexit vote automatically boosts the group’s revenue when converted into sterling, one reason ARM’s share price rose by around 15% in the weeks following the referendum (before SoftBank announced its offer).

SoftBank boss Masayoshi Son said that the offer is “not opportunistic.” The yen has gained nearly 9% against the pound since the Brexit vote, giving SoftBank more financial firepower to deploy in the UK, but this is a marginal factor in the punchy price it has offered for ARM (paywall). SoftBank’s offer is more than 40% above ARM’s all-time high valuation, set last year.

To appease British regulators, ARM’s Japanese suitors have committed to keeping the chipmaker’s headquarters in Cambridge for at least five years. It has also pledged to double the firm’s UK headcount, in order to “continue to develop leading-edge technology in the UK.”

ARM runs an asset-light business in which it licenses its technologies to others to manufacture elsewhere. It employs only around 4,000 people worldwide, with some 1,600 in the UK. For Britain, doubling ARM’s local staff would put a small dent in the ranks of bankers who might leave the country after Brexit, according to financiers.

Recent forecasts by academics from the London School of Economics suggest that foreign direct investment in the UK could fall by a quarter (pdf) after the country leaves the EU, with the job-heavy auto and finance industries hit particularly hard. Research funding is also under threat from Brexit, universities warn, which could dampen the activity in research clusters like the “Silicon Fen” around Cambridge, ARM’s home base.

Awkwardly, ARM’s first press release (pdf), issued in November 1990, boasted that its “technology, being a British design, has already attracted European Commission funding.” It added that further backing would come from its membership in a pioneering pan-European initiative supported by a predecessor of the EU to develop a common architecture for processors for use across the bloc.

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