According to various media reports, recently, graphics processing chip giant Nvidia officially terminated the acquisition of chip design company Arm for $66 billion.
The main reason is that the transaction has attracted opposition from almost all of Arm's other customers and almost all of the relevant national antitrust regulators.
It is not difficult to understand that Arm's business model is to provide intellectual property rights for chip design and manufacturing to high-tech companies in different industries (Apple, Google, Samsung, Qualcomm, NVIDIA, etc.) at the same time, and these customers often compete fiercely with each other.
Now Nvidia wants to eat Arm exclusively, which is bound to trigger other tech giants to block it through the regulators of the host country.
Although Nvidia is still ahead of Intel in the GPU field, its energy in the CPU field is a bit insignificant. If Arm can be successfully acquired, NVIDIA may be able to integrate its leading GPU technology into a set of systematic platform services (such as medical artificial intelligence imaging, autonomous driving technology, etc.), so as to obtain greater profits.
Similarly, Arm's annual revenue is about $2 billion to $3 billion, which is not small, but in the face of Intel(80 billion US$-100 billion in revenue), a powerful competitor in the market, it is a small witch.
Arm's advantages in the field of mobile chips in recent years have faced fierce challenges from giants such as Intel. But for SoftBank, arm's actual controller, this is just a "chronic crisis" like a "boiled frog", and the bigger problem is that it can't cash out profits in time. The failure of the deal will also most likely make it impossible to recoup the cost of acquiring Arm.
SoftBank spent about $32 billion to take Arm private. Although the latest news shows that SoftBank controller Son Zhengyi is ready to re-list Arm on the NASDAQ before the first quarter of 2023, according to foreign media sources, SoftBank's current valuation of Arm is only $24 billion.
Continuing in this way, It seems that SoftBank will face another loss-making transaction. In recent years, investment failures (or potential failures) like Arm's have been far from isolated and have gradually become another footnote to SoftBank's, which has always been "spring breeze".
The Japanese capital giant, founded in 1981, appears to be facing a "midlife crisis."
SoftBank's growth and growth
Founded in 1981 by Mr. Masayoshi Son, SoftBank's initial main business was the distribution of computer programs. Following the advent of the Internet era in the 1990s, SoftBank began to dabble in Internet services and ventured into the communications business, reshaping itself into a high-tech enterprise whose main business was telecommunications.
The change occurred in the era of the bursting of the Internet bubble in 2000, when countless Internet companies were on the verge of bankruptcy and the capital market was gradually turning away from Internet companies, Son Zhengyi made a decision that stunned many people at the time, investing $20 million to buy a part of the stake in Alibaba, a Chinese e-commerce start-up. You know, at that time, Son Zhengyi's net worth had fallen by more than 95%, and this 20 million seemed to be his "last attempt".
There are many stories about this investment, and some people say that Ma Yun's English helped his roadshow win Sun's trust within minutes, and he directly agreed to the investment without saying a word.
But some people say that Jack Ma's Alibaba has been rejected by dozens of leading private equity funds before, but Son Zhengyi's insight into the development of China's Internet market is extremely keen, not so much that he was impressed by Jack Ma's English in a few minutes, but rather that he had long been waiting for this opportunity to appear.
I don't think it's an exaggeration to call this investment decision a genius bet, because Alibaba's stock market in the U.S. is now nearly $350 billion. This is still the value after two years of continuous decline in stock prices by almost half. I grossly estimate that the return on SoftBank's investment will be "a thousand times".
By far, One of SoftBank's most valuable assets is Alibaba's 24.85% stake. The investment in Alibaba has won Son great praise as a "technology prophet" and directly prompted him to transform SoftBank from a telecommunications company into a pure investment company.
For more than 20 years, SoftBank has focused on acquiring and selling businesses for profit. In 2018, SoftBank began raising funds to create a Vision fund. Son doesn't seem satisfied that his fund raises less than $10 billion like a traditional VC. His appetite was greater.
With the help of a team that includes former Deutsche Bank executives, SoftBank has raised tens of billions of dollars from public investment funds in Saudi Arabia and more than $10 billion from sovereign wealth funds in Abu Dhabi into the Vision Fund.
SoftBank has also invested more than $25 billion worth of cash and assets into the fund, including a stake in arm, the British chip design company mentioned above.
Comprehensive foreign media reports, at present, Son Zhengyi's softbank main assets can be decomposed into four main parts.
- The first part is a 24.85% stake in Alibaba;
- The second part includes its remaining mobile communications business and Arm (Arm is expected to be cashed out);
- SoftBank's two Vision Funds make up the third part;
- The final part is Northstar, an internal hedge fund newly formed in 2020.
As shown in the chart below, as of the first quarter of 2021, The total assets owned by SoftBank Group are worth about $310 billion (nearly 2 trillion yuan), of which Alibaba is the most valuable, ranking second is the No. 1 Vision Fund, and SoftBank itself ranks third in market capitalization.
(Source: The Economist)
SoftBank's "Midlife Crisis"
In addition to the Arm cash-out problem mentioned above, I will briefly list 2 typical cases to show the problems that SoftBank has faced in recent years.
The first was the fiasco of investing in Wirecard. At the beginning of 2019, the stock price of the German "Alipay" company fell from its peak at the end of 2018 after being reported by foreign media about its accounting irregularities.
In March 2019, Wirecard, then a member of the German blue-chip Dax 30 index, said it was suing the Financial Times over a series of investigative news reports.
At this time, another member of SoftBank's team from the trading department of deutsche bank chose to believe Wirecard's claims and urged SoftBank to invest $1 billion in the troubled Wirecard.
In late April 2019, Wirecard announced that a SoftBank subsidiary would invest $1 billion in convertible bonds. At the same time, SoftBank has also reached a cooperation agreement with Wirecard, opening up a channel for the payment company to cooperate with other companies invested by SoftBank.
SoftBank's "backstop" had an immediate effect, causing the German company's stock price to rise by more than 20% in a short period of time.
But SoftBank's support is also tantamount to tying its reputation to the German company. Clues to the scandal over Wirecard's financial fraud haunt the capital markets.
In June 2020, the Financial Times report from a year ago finally proved accurate. Combined with multiple media sources, the auditor hired by Wirecard was unable to verify the billions of euros in cash that the company was supposed to keep in the bank, and Wirecard later admitted that the cash did not exist.
In late June, Wirecard, which owes nearly billions of dollars in debt, filed for bankruptcy. Local law enforcement agencies in Munich, Germany, which are investigating its financial fraud, see Wirecard's bankruptcy as a classic commercial fraud to evade responsibility.
With the "ashes" of Wirecard's stock price, SoftBank will also face a significant loss risk of $1 billion. But for SoftBank, the loss on Wirecard is not just about money, the loss is even greater is SoftBank's reputation.
According to comprehensive foreign media reports, all the money for the $1 billion bonds invested by SoftBank comes from SoftBank's institutional investors (through the Vision Fund) or individual investors, and SoftBank itself does not have any of its own funds to invest in the $1 billion.
Curiously, some executives at the SoftBank Vision Fund have invested a lot of their own personal money in it. The $1 billion investment was immediately refinanced at the start, earning about $70 million in "quick money."
Most of this fast money went to these individual investors, but the losses after the "heel cut" of the stock price after the Thunderstorm of the Wirecard scandal were left to everyone , including investors in the SoftBank Vision Fund.
The fund invests in a company facing a scandal, and the fund's top managers divide the "quick money" and then leave the risk to all the fund investors.
Doesn't that sound like a conspiracy theory tone? The old Xing next door did not dare to guess. The truth of this story may never be revealed, but SoftBank's reputational damage is real.
The second was the failure of the greensill investment. Greensill specializes in invoice financing, which provides receivable financing services to upstream businesses and then packages these invoice-backed loans into asset sets and resells them to other investors.
Credit Suisse provides Greensill with an important source of funding by distributing these assets to other investors.
In 2019, SoftBank invested $1.4 billion in Greensill through the Vision Fund. The investment itself is normal for VCs like SoftBank. But the more complicated situation is that SoftBank uses Greensill to finance other target companies in addition to investments.
This is technically fine, softbank-backed companies are generally not listed, and their financing needs are either through equity or through credit. SoftBank's stake in equity financing is bound to be diluted, so SoftBank has enough incentives to provide credit support to these businesses through Greensill.
But what's controversial is that the money Greensill invested was essentially money from Credit Suisse customers. This makes it possible for SoftBank to indirectly leverage the capital of Credit Suisse customers for its own benefit.
With the major crisis in Greensill's capital chain, the contradiction between Credit Suisse and SoftBank has gradually become public. After the official collapse of Greensill in March 2021, SoftBank will face litigation from Credit Suisse in addition to losing all its investment.
The specific reason is that SoftBank matching Greensill used credit suisse customers' money to lend to Katerra, another American construction company it owned. With Greensill and Katerra going out of business, Credit Suisse was in a hurry to claim compensation from SoftBank.
Following Zhang Lei's thinking, we may be able to link the above two investment failure cases of SoftBank with the "risk trap". Son's SoftBank may have to buy an order for its inadequacy in controlling investment risk in recent years.
Risk instability is also reflected in its share price, as shown in the chart below, SoftBank's stock price has continued to fall from a high in the first quarter of last year to a position close to the waist.
(Source: Sina Finance)
SoftBank, now 41, also faces the problem of a successor who has been struggling to give birth. According to foreign media reports, Marcelo Claure, a powerful deputy who has followed Son Zhengyi for many years, officially parted ways with a $1 billion bonus contradiction.
Marcelo Claure, who has been with SoftBank for 8 years, has been involved in SoftBank for 8 years and is often handled by Sun Dian to handle tricky M&A and IPO tasks.
Marcelo Claure led the successful merger of SoftBank's Sprint Telecom into T-Mobile, effectively responding to the antitrust regulatory requirements of the US authorities, making SoftBank a good return on the deal.
Other contributions of Marcelo Claure include leading the successful launch of WeWork through SPAC after the crisis.
He was once considered the future leader of SoftBank, and with his departure, coupled with the departure of Katsunori Sago, the chief strategy officer of SoftBank earlier, and the successive departures of Deep Nishar and Jeff Housenbold, executives in charge of the Vision Fund, the development prospects of SoftBank in the quasi-"post-Sun Justice" era have once again been labeled "uncertain".
End
If SoftBank is likened to a grand theater, and its assets are likened to various stages, then Son Zhengyi is sitting at the center of all these stages, and all the performances on the stage are directed by him.
SoftBank's burden of being weighed on him alone is bound to require his full commitment. But did Son Zhengyi also feel a little tired?
It is undeniable that the successful cases of SoftBank investment are not uncommon, and its current operating conditions have not been exposed to major risks that are "life-threatening". In the current international investment market, SoftBank is still very active and belongs to the top investors.
But we should also pay attention to the fact that as SoftBank's plates get bigger and bigger, and the appetite is getting bigger and bigger, in recent years, many of its companies have experienced thunderstorms from time to time. Similarly, SoftBank is also at risk of a sharp drop in the stock prices of its technology companies. How will the 65-year-old Sun Zhengyi steer this trillion-dollar asset ship out of the "middle-aged whirlpool"? We'll see.