Japan's SoftBank plunges after $32bn ARM purchase

SoftBank plunged more than 10 percent Tuesday as investors gave the thumbs down to the Japanese mobile giant's whopping $32 billion purchase of British iPhone chip designer ARM Holdings.

The sharp drop bucked an upward trend in the broader market after a public holiday, with the benchmark index rising for the sixth straight session.

SoftBank dropped 10.32 percent to 5,387 yen after the £24.3 billion ($32 billion) deal was announced Monday -- meaning it lost around $7 billion in market value.

The firm said it would offer £17 for each ARM share, a premium of around 43 percent compared with Friday's closing price, sending ARM rocketing more than 40 percent in London.

The Japanese market was closed Monday. 

But Softbank's stock took a pummelling at the open as the deal aggravated concerns about the Japanese firm's balance sheet after a string of earlier acquisitions -- including its 2013 purchase of still-unprofitable US mobile giant Sprint.

SoftBank has been selling off some assets, including gamemaker Supercell and trimming its investment in China e-commerce company Alibaba to raise cash.

But it had more than $100 billion in debt at the end of March.

"The ARM deal caused (the shares plunge), as the price was rather expensive which led to concerns over interest-bearing debt and a possible downgrading of SoftBank's credit rating," Hiroaki Hiwata, strategist at Toyo Securities, told AFP.

The all-cash offer was unanimously backed by ARM management, and British Prime Minister Theresa May declared that the record Asian investment proved "Britain is open for business", just weeks after the country voted to leave the European Union.

ARM develops and licenses technology central to digital electronic devices, including those made for Apple and South Korea's Samsung.

- 'Highly inconsistent' -
Analysts said a sharp plunge in the pound, in particular against the dollar, since the referendum result is making British companies attractive for foreign groups.

Flamboyant SoftBank founder Masayoshi Son has led the firm on a string of acquisitions big and small, with many showing themselves to be ahead of their time, including the firm's early investment in Alibaba.

The company -- often described as China's equivalent to eBay -- dominates online commerce in the country.

But SoftBank's ARM deal left some analysts scratching their heads, as it lay well outside its previous investments. 

"This is not internet, this is not e-commerce, this is more on the chip design licensing which is completely divergent from (SoftBank's previous deals) so it is highly inconsistent with was it has done so far," Atul Goyal, senior equities analyst at Jefferies, told Bloomberg TV.

"Masayoshi Son is someone who has made things work in the long term. So, on a very long term, it could still make sense but in the near to medium term for most shareholders it does not seem to make more sense."
Despite the tumble, the wider market ended higher with the Nikkei 225 index up 1.37 percent, or 225.46 points, at 16,723.31.

The broader Topix index of all first-section shares increased 1.08 percent, or 14.29 points, to finish at 1,331.39.

A broadly weaker yen helped exporters. The dollar was at 105.92 yen in Tokyo, against 106.14 yen in New York but well up from the levels around 100 yen seen at the start of the month.

Nintendo soared 14.36 percent to 31,770 yen, becoming more valuable than Sony. Its shares have doubled since July 6 at the time of the release of the wildly popular Pokemon Go smartphone game.

McDonald's Japan jumped 5.26 percent to 3,200 yen after it started giving away Pokemon figurines with sales of Happy Meals on Friday. The shares rocketed 23 percent at one stage Tuesday.

"Investors are flocking to Pokemon-related stocks and McDonald’s Japan is one of those benefiting from the boom," Mitsushige Akino, a Tokyo-based executive officer at Ichiyoshi Asset Management, told Bloomberg News. 

Messaging app Line tumbled 8.17 percent to 3,990 yen after it soared 32 percent on its Tokyo trading debut Friday in the year's biggest technology share sale.

Source: AFP