Not for the first time, SoftBank is having a terrible, horrible, no good, very bad week. Indeed, even while the Japanese conglomerate is known for its extremes — be it bold bets, internal squabbles, soured business relationships, or its ability to repeatedly bounce back from the brink — some newer developments could prove particularly hard, if not impossible, to overcome.
The worst of these, seemingly, is the lawsuit filed yesterday by the Federal Trade Commission to block chipmaker Nvidia’s acquisition of Arm, the British company that licenses chip technology, out of stated concern that the deal would give Nvidia too much control over computing technology.
“Tomorrow’s technologies depend on preserving today’s competitive, cutting-edge chip markets,” Holly Vedova, the director of the agency’s competition bureau, said in a related statement. “This proposed deal would distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine Nvidia’s rivals.”
The problem for SoftBank? A scuttled deal could means tens of billions of dollars to the outfit, which acquired the now 21-year-old Arm in July 2016 for $32 billion before selling it to Nvidia in a cash-and-stock deal valued at $40 billion. It’s even worse than it sounds. Nvidia’s share price has continued to rise so fast that, as Bloomberg noted earlier today, that $40 billion deal has since ballooned into a $74 billion deal.
It might not be a complete disaster for SoftBank. The deal has expected to receive regulatory scrutiny from the moment it was announced, so SoftBank might already have factored in this very likely possibility. Nvidia also says it will contest the FTC lawsuit (though it seems unlikely to win against the agency). Besides, all things chip-related are much in demand at the moment.
Still, it isn’t clear what Arm would be worth to another buyer. Meanwhile, if SoftBank decides to take the outfit public instead, it could be worth closer to half what Nvidia paid for it, estimates Bloomberg, based on the average market-capitalization-to-sales ratio of 9.9 times that members of the Philadelphia Stock Exchange Semiconductor Index currently enjoy. (We reached out to SoftBank earlier and have yet to receive a response to our press request.)
In the meantime, SoftBank is also in danger of losing a key lieutenant over compensation. According to a New York Times story that published earlier this afternoon — in timing that is perhaps not coincidental — Marcelo Claure, who is SoftBank’s chief operating officer and is widely believed to be the right-hand man to SoftBank founder and CEO Masayoshi Son, has been locked in a protracted battle with the company over his compensation.
In fact, according to four people who spoke with the Times, he’s apparently prepared to leave SoftBank if he doesn’t get what he wants, which is $2 billion in compensation over the next several years. SoftBank is apparently thinking more along tens of millions of dollars at most instead.
It would be a major loss to SoftBank. Claure wears many hats for the company. He was WeWork’s interim CEO after it pushed out Adam Neumann for example, and helped recruit current CEO Sandeep Mathrani. Claure is also at the top of two other org charts: its diversity-focused SoftBank Opportunity Fund and its SoftBank Latin America Fund vehicles, which are responsible for most of the firm’s outsize bets these days. (We talked with Claure about SoftBank’s aggressive LatAm strategy at Disrupt in September; see below.)
Certainly, Claure would also be among the highest profile in a very long string of departures from the firm. Earlier this month, Bloomberg noted that SoftBank’s “eccentric” approach to compensation — it pays far less than similar-size rivals — has helped precipitate the resignations of seven managing partners since March of last year, with its only senior managing partner, Deep Nishar, announcing last week that he is joining General Catalyst as a managing director.
SoftBank has recovered from worse, but it seems particularly vulnerable at the moment. Just last week, Son revealed that SoftBank Group has lost more than $50 billion owing to Beijing’s tech crackdown and its shares are down sharply. With these two newer and very public developments, it’s going to be that much harder to boost investor confidence in the company.