SoftBank Group Corp.'s Arm Holdings Ltd. is preparing for a notably reduced initial public offering (IPO) compared to its previous ambitions. In its filing with the US Securities and Exchange Commission on Tuesday, Arm announced its intention to raise up to $4.87 billion by offering 95.5 million American depositary shares, priced between $47 and $51 each. At the upper end of this range, Arm's valuation could reach as high as $54.5 billion, based on Bloomberg News calculations. Additionally, underwriters have the option to purchase up to 7 million additional shares.
This adjusted fundraising target is a departure from Arm's earlier goal of securing $8 billion to $10 billion. The change is attributed, in part, to SoftBank's decision to acquire the 25% stake held by its Vision Fund, resulting in SoftBank retaining approximately 90% of Arm's shares post-IPO, as disclosed in the filing.
Even at the lower end of the share-sale range, Arm's IPO would still rank as the largest in the world this year, surpassing the $4.37 billion listing by Johnson & Johnson's consumer health spinoff, Kenvue Inc. Arm's IPO may also pave the way for numerous technology startups and other companies seeking to go public in the United States, a process that has faced challenges in the current market climate, marking the most prolonged lull in listings since the 2009 financial crisis.
Several entities, including Instacart Inc., Klaviyo (a marketing and data automation provider), VNG Ltd. (a Vietnam-based internet startup), and Birkenstock (a footwear manufacturer), have either filed for or are actively pursuing IPOs.
Notably, Arm, a critical component of the global chip supply chain known for designing semiconductors used in most smartphones, initially aspired to achieve a valuation of $60 billion to $70 billion through its IPO. The Vision Fund transaction by SoftBank previously valued Arm at over $64 billion, based on Arm's filings.
The actual amount raised in the IPO may vary depending on investor demand during the roadshow. Arm is contemplating pricing its shares on September 13, with trading commencing the following day.
Ten of Arm's customers, including Apple Inc., Nvidia Corp., Advanced Micro Devices Inc., Alphabet Inc.'s Google, Intel Corp., MediaTek Inc., TSMC Partners Ltd., Synopsys Inc., and Cadence Design Systems Inc., have expressed their intent to be cornerstone investors in the offering, indicating an interest in purchasing up to $735 million worth of shares.
Leading the offering are Barclays Plc, Goldman Sachs Group Inc., JPMorgan Chase & Co., and Mizuho Financial Group Inc., with 24 additional underwriters participating in the offering. Arm plans to change its name to "Arm Holdings Plc" before its debut on the Nasdaq Global Select Market under the symbol ARM.
A successful debut by Arm would yield substantial benefits for SoftBank founder Masayoshi Son, particularly as the Vision Fund incurred a record $30 billion loss the previous year.
Arm's targeted valuation reflects optimism about its prospects in the rapidly growing market for artificial intelligence chips and generative AI, an industry shift that has propelled Nvidia to a valuation of $1.2 trillion.
Although Arm's technology is ubiquitous in smartphones, it is not widely recognized by consumers. Arm primarily sells the blueprints required for designing microprocessors and licenses instruction sets governing software communication with these chips. Its technology's power efficiency has made it a standard choice for smartphones, where battery life is crucial.
Under the leadership of CEO Rene Haas, who assumed the role last year, Arm is diversifying beyond the smartphone market, which has seen stagnation in recent years. The company is targeting more advanced computing sectors, particularly data center and AI chip applications, known for their substantial profitability.
To remain competitive in the AI landscape, companies require specialized chips to run complex software. Arm asserts that all its designed processors will enhance AI and machine learning technology, with existing processors already supporting these technologies. The company has also introduced new features to accelerate algorithm execution.
Despite a chip industry grappling with declining sales exacerbated by inventory surplus, Arm reported a 1% decrease in revenue to $2.68 billion for the fiscal year ending on March 31, according to its filings. The company's net income, which rose to $549 million in fiscal year 2022 from $388 million the prior year, fell to $524 million this year.
Originally established as a joint venture between Acorn Computers, Apple, and VLSI Technology in 1990, Arm is returning to the public market. It was previously listed on the London Stock Exchange and Nasdaq from 1998 until 2016 when SoftBank acquired it for $32 billion.
SoftBank's previous attempt to sell Arm to Nvidia in a $40 billion deal, which would have been the largest acquisition in the chip industry, faced regulatory and customer opposition, leading to its abandonment by Nvidia last year. Subsequently, SoftBank devised the IPO plan for Arm.
Arm's forthcoming listing is set to be the largest in the United States since electric vehicle manufacturer Rivian Automotive Inc.'s $13.7 billion offering in October 2021. While it ranks among the tech industry's most substantial IPOs, it falls short of the two largest offerings to date: Alibaba Group Holding Ltd.'s $25 billion IPO in 2014 and Meta's (formerly Facebook Inc.) $16 billion debut in 2012.
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