Analysts Raise Fair Value for Takeover Target ARM

On July 18, 2016, Softbank announced its intention to acquire wide-moat ARM Holdings in an all-cash deal that values the latter at £24.3 billion

Morningstar Equity Analysts 18 July, 2016 | 10:11PM

On July 18, 2016, Softbank announced its intention to acquire wide-moat ARM Holdings (ARM) in an all-cash deal that values the latter at £24.3 billion, with both boards approving the combination. On the surface, we view this deal favourably for ARM shareholders, as the offer price implies a 43% premium relative to ARM’s most recent closing share price. ARM will continue to operate independently, and management is expected to remain in place.

Consequently, this deal allows ARM to significantly increase its scale via a greater influx of investment backed by Softbank, with an assurance by the latter that ARM’s U.K. headcount will be doubled over the next five years. Simon Segars, CEO of ARM, is expected to continue in his role and cited the Internet of Things and autonomous driving as two examples of upcoming trends in which ARM will be more able to invest and drive innovation, as part of Softbank.

Other than the scale promised, we don’t see any major synergies exhibited by the combination at this point in time. We are raising our fair value estimate to £17 per share as we take into account Softbank's offer to acquire ARM for £24.3 billion. The offer price implies a 43% premium relative to ARM's last closing share price prior to the announcement. We believe there will not be any significant regulatory hurdles faced by Softbank.

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Morningstar Equity Analysts  Morningstar stock and fund analysts cover 2,000 mutual funds, 2,100 equities, and 300 exchange-traded funds.

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