Japan's SoftBank plunges after $43b ARM buy

Logos of ARM Holdings and SoftBank sit on a background during a news conference in London, July 18.
Logos of ARM Holdings and SoftBank sit on a background during a news conference in London, July 18.PHOTO: BLOOMBERG

TOKYO (AFP) - SoftBank plunged in early Tokyo trading on Tuesday (July 19) as investors gave a thumbs down to the Japanese mobile giant's whopping £24.3 billion (S$43.4 billion) purchase of British iPhone chip designer ARM Holdings.

The sharp drop bucked an upward trend in the broader market after a three day holiday, tracing gains on Wall Street where leading indexes hit fresh records.

SoftBank dropped 10.18 per cent to 5,395 yen in the wake of the deal, announced on Monday.

SoftBank said it would offer £17 for each ARM share, a premium of around 43 per cent compared with Friday's closing price of £11.89, and it sent ARM's share price rocketing by about 41 per cent on Monday in London.

But Softbank's stock took a pummelling as investors turned up their nose at the bid price, reigniting concerns about SoftBank's balance sheet after a string of earlier acquisitions raised fears over its finances.

SoftBank had roughly 12 trillion yen of interest-bearing debt as of March.

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

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

ARM develops and licenses technology central to digital electronic devices, including those made for Apple and South Korean rival Samsung.

Analysts said the vast weakening of the pound, in particular against the dollar, since the referendum result is making British companies attractive for foreign groups.

Overall gains in Tokyo came after large tech companies and some banks lifted the Dow Jones Industrial Average and S&P 500 to fresh records, extending a three week rally, despite continued worries over the failed military coup in Turkey.

In morning trade, the benchmark Nikkei 225 index climbed 0.69 per cent, or 114.24 points, to 16,612.09 at the open, while the broader Topix index of all first-section shares gained 0.68 per cent, or 8.96 points, to 1,326.06.

US and European stocks have been on a tear after initially tumbling on the British vote to leave the European Union as global investors gird for a longer period of very low interest rates.

"Since the Brexit selloff, the rally has been very broad based and that is a good sign," Ted Weisberg, president of Seaport Securities, told Bloomberg News.

"The world of low and negative interest rates clearly makes equities, by default, a positive court of last resort."