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.
It's just different forms of shareholder assets being traded for other assets, by the shareholders (or rather, their majority vote).
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.
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.
Cash paid in this instance is treated no different than cash in their normal operating expenses. If either generates profits in line with their current expected returns, the stock price stays the same, and everyone is indifferent to the transaction.
Same goes for stock issuance. If the expectation of the use of proceeds from the issuance are in line with the company's current expected returns, everyone is indifferent.
Your statement is still true, and the stock market jumped today on the news, so I feel my connotation is misplaced.
This is a pretty naive depiction of Wall Street.
> 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?
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?
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.
Prior to that it was a publicly traded company, presumably with a diverse array of international shareholders.
There are more ARM chips sold each year than those of all its competitors together. Yet ARM's revenue is 300 million $.
Why? Because ARM lives from the ISA royalties, and their revenue on the cores they license is actually small.
With RISC-V on the rise, and west sanctions against china, RISC-V competition against ARM will only increase, and it is very hard to compete against something that's good / better and has lower costs (RISC-V royalties are "free").
I really have no idea why NVIDIA would adquire ARM. If they want a world-class CPU team for the data-center, ARM isn't that (Graviton, Apple Silicon, Fujitsu, etc. are built and designed by better teams). ARM cores are used by Qualcom and Samsung, but these aren't world-class and get beaten every gen by Apple Silicon. If they want ARM royalties, that's high risk business, and very low reward (there is little money to make there).
The only ok-ish cores ARM makes are embedded low-power cores (not mobile, but truly IoT < 1W embedded). Hard to imagine that an architecture like Volta or Ampere that perform well at 200-400W would perform well at the <1W envelope. No mobile phone in the world uses nvidia accelerators, and mobile phones are "supercomputers" when compared with the kind of devices ARM is "ok-ish" at.
So none of this makes sense to me, except if NVIDIA would want to "license" GPUs with ARM cores to IoT and low power devices like ARM does, but that sounds extremely far-fetched, because nvidia is super-far away from a product there, and also because the margins for those products are very very thin, and nvidia tends to like 40-60% margins. You just can have those when buying IoT chips for 0.12$. Its also hard to sell a GPU to these use cases because they often don't need it.
Graviton uses Neoverse CPU cores, which are designed by ARM. To say that ARM is not a world-class CPU team is unfair. Especially as Ampere just announced an 80 core datacenter SoC using Neoverse cores.
Revenue is not $300, we don't know what ARM's revenue is because it hasn't been published since 2016. And back then it was like $1.5 billion. $300 million was net income. Again, in 2016.
I think you've already been adequately corrected on your misconceptions about ARM's CPU design teams.
The latest Fujitsus HPC offering the A64FX is also ARM based though.[1][2] And it sounds as though this is replacing their SPARC64 in this role .
More like 30-40. https://en.wikipedia.org/wiki/Private_equity_in_the_1980s
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/officersanddir...
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.)
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.
> 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?
> 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.
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.
One would be making the argument, "the cost is essentially free because although we spent $40B, we acquired a company worth $40B". Obviously, that's not any more correct than the case of paying in stock.
If they gave away cash, that's a different story, it all depends.. if they were sitting on $1tn cash, and the spent $40bn, that's no biggie. I mean we went through COVID, what worse can come next?
Well, you’re now getting 50% of the dividend produced by the new combined entity. If the deal was correctly priced, your share of the Arm dividend should exactly replace the portion of your Nvidia dividend that you lost through dilution.
Nvidia is essentially telling us that they think their shares are currently richly valued. I agree with that.
They could also think their shares are valued accurately but believe the benefits of synthesis would increase the value.
https://www.marketwatch.com/investing/stock/nvda/financials/...
Their only other option would be taking on debt.
That's telling us something about what they think about their share valuation right now.
All it tells you is that they think it's preferable to taking on debt, which in some sense is the position you always start from. Debt has a deadweight cost that you have to overcome.
But we can test your theory. You're saying they thought their shares were overvalued. The market's reaction was the opposite - announcing the deal bumped their share price 7.5%.
You realize that logic no longer matters in this economy. There's an oversupply of printed money and stonks literally only going up.
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).
"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... )
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.)