SoftBank negotiates the purchase of 25% of Arm owned by Vision Fund

SoftBank Group Corp. is in talks to acquire the 25% stake in arm ltd that does not directly own Vision Fund 1 (VF1)a $100,000 mutual fund that it raised in 2017, according to people familiar with the matter, which could spell a win for investors who have waited years for strong returns.

The talks come as Softbank prepares to list the chip designer on Nasdaq next month with a valuation between US$60 billion and US$70 billion.

If negotiations lead to a deal, the Japanese tech investor would offer a significant immediate profit to VF1 investors, including the Saudi Arabia Public Investment Fund and Abu Dhabi Mubadala. These investors suffered losses after many of Softbank’s bets on startups such as workspace provider WeWork Inc and ride-sharing company Didi Global soured.

The alternative – letting VF1 sell its Arm shares on the stock market eventually after the initial public offering (IPO) – would normally take at least a year or two, given the size of the stake. It would also be riskier for investors in the fund, as Arm’s shares may have fallen after the IPO.

VF1 turned profitable again in the last quarter on the back of investor enthusiasm around artificial intelligence, which boosted the value of some of the startups it invested in. However, its earlier losses prevented SoftBank from securing outside investors for Vision Fund 2 (VF2), whose $56 billion in capital came from the Japanese company and its managers, including Chief Executive Masayoshi Son.

A large windfall for VF1 investors could increase the chances of SoftBank to turn to them again for capital in the future. The company has been considering the possibility of raising a third Vision Fund.

Son, who hired investment bank Raine Group to advise SoftBank in the negotiations, has been recused from VF1’s deliberations on the matter in order for the fund to make an independent decision in the interest of its investors, the sources said..

Negotiations are being conducted by VF1’s investment committee and SoftBank’s investment advisory council, which is attended by representatives of the fund’s investors, one of the sources added.

The exact valuation of Arm that both parties are discussing for their transaction could not be known, and sources warned that no deal may be reached. If a deal is reached, SoftBank would sell fewer Arm shares at the IPO and likely retain an 85-90% stake.according to the sources, who requested anonymity because the negotiations are confidential.