The deal is expected to be announced first thing Monday morning, according to two people familiar with the negotiations. SoftBank and Arm could not immediately be reached for comment.
The takeover of Cambridge-based Arm, which was founded a quarter of a century ago and now employs 4,000 people, would be the largest acquisition of a European technology business. SoftBank will pay £17 in cash for each share in Arm, a 43 per cent premium to its closing price last week.
The deal comes just weeks after UK elected to exit the EU, a decision that raised questions over the attractiveness of the country's business community. But Arm, as a global force in chip design, is better insulated from the vote for Brexit than many other UK companies with its leadership role in a key segment of the chip industry and the fact that it earns in US dollars.
The fall in sterling following the Brexit vote has left the UK currency nearly 30 per cent lower against the Japanese yen over the past year, making Arm an attractive target. Shares in Arm were essentially flat over the last 12 months.
Only weeks ago, Masayoshi Son, the charismatic 58-year-old chairman of the Japanese group, abruptly parted ways with his chief dealmaker and heir apparent Nikesh Arora, a former Google executive.
Mr Son has built SoftBank into a sprawling global telecoms and media group worth $68bn and comprising holdings that range from a majority stake in Sprint, the fourth largest US mobile carrier, to Yahoo Japan, the country's most popular internet search engine.
With a fondness for big "crazy ideas", Mr Son has been looking to deploy a huge war chest of cash he has accumulated from successful investments.
Some of his previous deals include a $20m investment in ecommerce company Alibaba in 2000 that is now worth $65bn, and the $15bn acquisition of Vodafone's lossmaking Japanese arm 2006 that has positioned SoftBank as the number three carrier in the market.
Over the past decade Softbank has spent about $82bn to carry out more than 140 deals. Nearly all of them were executed in the last four years by Mr Arora, who made a range of transactions, from buying a tiny stake worth a few million dollars in little known start-ups to multibillion-dollar investments in fast-growing companies, such as Didi Chuxing, the Chinese ride-hailing mobile app and competitor to Uber.
Arm has often been talked about as a potential acquisition target for Intel, the world's largest chipmaker, which failed to capitalise on the smartphone boom. Intel's chip architecture, known as x86, was developed for PCs and has been ill-suited to battery-powered devices for which efficient power consumption is key.
Its position as the only UK tech company of note has also made it a frequent subject of speculation as US companies have sought to put to use their large overseas cash piles. The interest in UK acquisitions intensified after the collapse in sterling that followed the Brexit vote, though targets were scarce with Arm the only company with global significance.
The FTSE 100 company has also targeted one of Intel's most successful businesses, in making chips for servers.
Arm's technology was originally developed in the 1980s at Acorn, a British computer maker. It was spun off into a separate company, with significant backing from Apple, and its technology was used in the first generation of mobile devices including Apple's handheld Newton.
Arm's business model has relied on licensing its technology to other hardware makers, making it a near-ubiquitous feature of mobile devices. It reaps a small royalty amount for each device, relying on very large volumes. Last year, 15m chips based on its technology were shipped, nearly 3m more than the year before. Nearly half of those were in mobile devices, though Arm is seeing faster growth in chips for networking equipment and the internet of things.
As purely a designer of chips rather a manufacturer, its intellectual property model leaves it with a high profit margin. However, its revenues of around £1bn last year made it a minnow by global chip standards. The purchase price is equivalent to 70 times its net income last year, and more than 50 times earnings before interest, taxes, depreciation and amortisation.
Because it licenses its technology to most prominent hardware makers, including Apple and Samsung, it has been considered immune from acquisition by one of these companies, since such a deal would risk alienating other customers.
By: Arash Massoudi, James Fontanella-Khan, Richard Waters and Kana Inagaki (Financial Times).
Photo: Yahoo.
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