SoftBank acquires ARM: acquisition completed on 5 September 2016, following 10 years of “unreciprocated love” for ARM
On 18 July 2016 SoftBank announced a “Strategic Agreement”, that SoftBank plans to acquire ARM Holdings plc for £24.0 billion (US$ 31.4 billion, ¥ 3.3 trillion) paid as follows:
SoftBank’s acquisition of Vodafone Japan – in combination with having developed YAHOO-Japan into the leading internet service company in Japan – enabled SoftBank to become a key global player in mobile communications.
Masayoshi Son: unreciprocated love for ARM for 10 years
In the Nikkei interview of 3 September 2016, Masayoshi Son explains that he had an “one-sided / unreciprocated love for ARM” for at least 10 years, but decided to acquire SPRINT first. After acquiring SPRINT he had to pay down debt before being able to acquire ARM now.
ARM Holdings plc
ARM was founded on 27 November 1990 as Advanced RISC Machines, however the abbreviation ARM was first used in 1983 and initially meant “Acorn RISC Machines”.
Acorn Computers Ltd was founded in 1978 in Cambridge (UK) by Hermann Hauser and Chris Curry to produce computers, and its most famous product was the BBC Micro Computer.
ARM has built an ecosystem of IC design systems and platforms which are at the core of low energy consumption ICs and CPUs for smartphones and many other electronic devices and cars. ARM may become or already is one of the core technology companies for the Internet of Things (IoT).
SoftBank’s ARM Business Department’s name changed to “New Business Department”
On 3 September 2016 SoftBank announced that the name of SoftBank’s ARM Business Department has been changed to SoftBank New Business Department.
On June 1, 2015, SoftBank announced an investment to increase the ownership of Supercell stock from 50.5% to 73.2% on a fully diluted basis. This transaction had closed on May 29, 2015.
While Softbank did not officially disclose details of this transaction, VentureBeat/GamesBeat reported that SoftBank this time paid US$ 1.2 billion for this additional 22.7% of ownership. Thus by dividing US$ 1.2 billion by 22.7% we can calculate a market value of US$ 5.3 billion.
Supercell is reported to have achieved revenues of US$ 1.7 billion and income of US$ 0.5 billion in 2014.
Currently Clash of Clans is ranked No. 7 top grossing app in Japan’s iOS app store, and No. 6 in the Games category (source: Apple App Store ranking).
According to AppAnnie, on June 1, 2015, Supercell’s games Clash of Clans, Hay Day and Boom Beach were ranked as the No. 1 top grossing games for iPad in 149, 128 and 112 countries respectively.
Learn about Japan’s game makers and markets – our report
Supercell investment leverages paradigm shift, time shift and market disconnects
Smartphones and the “freemium” business models are bringing a dual paradigm shift to games and create a new truly global market. To take advantage of this global paradigm shift, its necessary to overcome the cultural disconnects between markets. SoftBank and GungHo‘s investment in the Finnish smartphone/tablet game maker Supercell, announced on Oct. 15, will help to overcome the disconnect between Japan’s and other game markets for both Supercell and GungHo.
One of SoftBank‘s aspects is it’s “time-shift” investment model, another is SoftBank‘s 30/300 year vision – both are important factors to understand the Supercell investment.
Comparing Supercell’s US$ 3 billion valuation with Japanese game companies (note that the market cap for the full SONY Group is shown here)
This Figure contrasts the market caps of new mobile and smartphone centric game companies (GungHo, Supercell, DeNA and GREE) with traditional console, video game and arcade game companies.
SoftBank announced that because of the majority investment, Supercell will become a subsidiary of SoftBank, and GungHo will account for Supercell’s profit/loss under the equity method.
Comparing Supercell with Japanese game companies and SoftBank
GungHo and Supercell both are top-ranking mobile game companies: GungHo inside Japan with “Puzzle and Dragons”, and Supercell outside Japan with “Hay Day” and “Clash of Clans”. Expect both to leverage each other’s resources.
Both GungHo and Supercell show explosive growth:
GungHo’s operating profits increased 4050% (x 40) for Jan-June 2013 compared to the same period one year earlier.
Supercell’s revenues (mainly in-game purchases) jumped 500x from EURO 151,000 in 2011 to EURO 78 million in 2012.
Culture can be an issue between Japan and other countries, however, SoftBank has invested in more than 1000 comparable companies, and many of SoftBank’s investments have been outstandingly successful including Alibaba and Yahoo.
However, investment and management support by SoftBank does not automatically guarantee success in Japan – despite SoftBank’s investment and support, Zynga closed operations in Japan earlier this year. Success in Japan will remain Supercell’s responsibility, despite SoftBank’s and GungHo’s help and investment – as Zynga can tell.
“SoftBank” replaces “Vodafone” brand in Japan following Vodafone’s decision to sell all Japan operations to the Softbank Group (after Vodafone had previously split off and sold fixed-line and other operations to Softbank in earlier transactions).
Photographs below show the world famous Vodafone board on Tokyo-Shibuya’s Hachiko-square being replaced by the SoftBank advertisement from June 14, 2006.
SoftBank acquired Vodafone-Japan and rebranded to SoftBank mobile on June 14, 2006Rebranding advertisement boards along Tokyo’s Yamanote ring line. Noteworthy are the cheese, cow, car tire and ice cream bar shaped mobile phone covers, which Vodafone offered because it was short of new phone models, and which did not help to improve Vodafone’s brand in Japan
The Vodafone brand is replaced by the SoftBank brand all over Japan
Saturday June 10, 2006 was the first time we saw SoftBank replacing the Vodafone brand in Japan – bringing a formal end to Europe’s largest ever investment in Japan.
Vodafone’s withdrawal from Japan is a turning point in more ways than one and has wider implications for Europe (read below).
Vodafone’s withdrawal also shows, that the values of cross-cultural management skills are often underestimated.
SoftBank’s brand strategy
Rebranding from Vodafone to SoftBank after SoftBank acquired Vodafone Japan
Upper image shows the world-famous Vodafone board on Shibuya’s hachiko square, which has appeared in many movies and TV shows. It will soon be replaced.
Lower image shows one of the first SoftBank advertisements in Tokyo’s busiest commuter railstation Shinjuku showing Sharp’s mobile-TV handset.
Implications for Europe of Vodafone’s withdrawal from Japan
As a European myself, I am looking at the wider implications for Europe of Vodafone’s withdrawal from Japan – and our company was recently awarded a contract by the European Union Government on exactly these issues – as well as others.
Vodafone’s investment was by far the largest European investment in Japan. What is maybe less well known is that Vodafone was dispatching a relatively large stream of managers between several continents (Europe, Australia etc) and Japan. Several times when visiting the KDDI Designing Center for example I could meet young German Vodafone managers who had just arrived for a management position at Vodafone-Japan, and who were studying the mobile phone handsets in KDDI’s showroom. These expatriates all left within a few weeks of SoftBank taking control of the company.
As a result of these interactions, Vodafone could bring J-Phone’s J-Sky mobile internet service to Europe, which was adapted for European conditions and rebranded “Vodafone Live!”. There would be no “Vodafone Live!” in Europe without Vodafone’s acquisition of J-Phone (including JSky). Vodafone also brought SHARP and Toshiba mobile handsets to Europe.
Apart from the immediate impact on Vodafone as a Corporation, we expect also a more general longterm impact from the strong reduction of Europe-Japan technology exchanges due to Vodafone’s withdrawal from Japan.
Vodafone’s withdrawal from Japan also shows how difficult it is for European telecom firms to succeed in Japan – and for Japanese firms in the telecom sector to succeed in Europe. Our company knows this first-hand from our work for NTT-Communications, and some other Japanese companies. – Read our presentation to Japanese industry associations here (in Japanese language).
It also shows how easy it is to underestimate the importance of cross-cultural management skills and the associated perils
While large US corporations, including INTEL, General Motors, and Motorola have been forced by confrontation with Japan’s competition to completely reshape themselves, this has not yet happened to any large European corporation because of the larger perceived separation between EU and Japan.
Today (March 23, 2006) I was invited to brief the Technology Attaches of the Embassies of the 25 European Union countries here in Tokyo about Japan’s telecommunications sector (both fixed net and wireless) in a one hour presentation + discussion. I had offered several alternative topics and the conference of EU Technology Attaches selected the most provocative title I had offered: “Why Japan is several years ahead of Europe in telecommunications and what Europe can do to catch up”
Vodafone KK’s Chairman and former NTT-DoCoMo Vice-President Tsuda, who had worked 34 years at NTT and DoCoMo (and who resigned from his Vodafone-Japan CEO position a few weeks after being head-hunted), said in a recent interview with Bloomberg that “Japan is way ahead in 3G”. – therefore, although this title is clearly provocative, it’s clearly worthwhile examining this question. With the sale of Vodafone KK to SoftBank last week, the timing of this briefing was particularly interesting. My presentation discussed the following questions:
Is Japan ahead of Europe in Telecommunications and fixed as well as wireless broadband?
Why?
What is the impact?
Is this important?
What Europe can do to catch up
EU awards project contract to Eurotechnology Japan KK to document the status of fixed and wireless broad band communications in EU vs Japan
As a consequence of this presentation the EU awards project contract to Eurotechnology Japan KK to document the status of fixed and wireless broad band communications in EU vs Japan, and to prepare recommendations for the EU to learn from Japan, and accelerate progress in Europe.
Vodafone failed in Japan not for one single reason but for hundreds of reasons, which can be grouped into two groups
Soft factors:
Japan knowledge at HQ, and knowledge at HQ about the specifics of Japan’s telecom sector (or lack thereof).
choice of management structure (there were attempts to correct the management structure, however too little and too late).
attitude displayed both privately e.g. within the Japanese industry sector and publicly via marketing messages and advertising
choice of executives and lower ranking managers and their knowledge and experience in Japan’s telecom sector (or lack thereof)
lack of sufficient know-how and experience to manage a large Japanese company, and particular the chain of retail stores
and many more
Hard factors:
far too low budgets for infrastructure investment resulting in much lower coverage and network quality compared to competitors NTT-DoCoMo and KDDI/au and TuKa, Willcom and others. As a consequence of far too low investment budgets, Vodafone failed three times to introduce 3G services in Japan. (3G services were not successfully introduced until after the acquisition by Softbank, and after conversion of Vodafone KK to Softbank-Mobile).
mobile phone handsets were inferior to the handsets offered by competitors NTT-DoCoMo and KDDI, and TuKa
and many more
vodafone brand disappears from Japan
Long answer
Find a long answer in this blog post below, in our other blog posts, and in some detail including statistics and financial data in our Softbank Report.
On Friday March 17, 2006, Vodafone and Softbank announced that Vodafone sells Vodafone KK (the totality of all Vodafone operations in Japan) to Softbank.
It has been reported that on Monday March 20, 2006, Softbank started to move all Vodafone KK staff, furniture and equipment from Vodafone KK’s former headquarters in the top floors of the Atago-Greenhills-Mori-Tower to Softbank headquarters in Shiodome (near Shinbashi). Also Softbank started to arrange that essentially all foreign expatriate managers left Vodafone KK – some stayed in Japan working for other IT companies, some returned to European Vodafone divisions, and some pursue telecom careers in USA, India, Bangladesh, or elsewhere.
By total coincidence, I had dinner a high-level manager of Vodafone KK, of European nationality, at the indian restaurant Moti’s in Tokyo-Roppongi on exactly the same day, the Friday March 17, 2006 a few hours after the sale of Vodafone KK to Softbank was announced. I asked him: “Which of the following is true:”
Vodafone never did any market research in Japan?
Vodafone did market research in Japan, but the quality was low?
Vodafone did market research in Japan, but nobody read it?
This Vodafone KK manager’s answer at the indian dinner was (3): market research was done about Japan’s mobile phone market, but the market research was not sufficiently taken into account in the business and strategy planning.
Fact is, that Vodafone KK took many major strategy and market decisions in Japan, which were not related to the realities of Japan’s market. Here one example. When “rebranding” (=changing the company / product / services names) from J-Phone to Vodafone, this “rebranding” campaign was centered on global roaming, i.e. Vodafone enabled Japanese customers to use Japanese J-Phone/Vodafone mobile phones in a very large number of countries outside Japan as well as inside Japan. This was at a time, when Japan’s mainstream mobile 2G phone system which both DoCoMo and J-Phone used was PDC, while much of the rest of the world, especially Europe used GSM. However, what Vodafone overlooked was, that at that time DoCoMo had about 30,000 roaming customers, out of approx. 50 million subscribers, i.e. only about 0.06% of Japanese mobile phone users used international roaming at that time. Thus Vodafone KK in Japan focused their main nation-wide poster and TV and other media campaign on about 0.06% of the Japanese market – less than a niche. (The reason we know how many roaming customers DoCoMo had at that time, is because one of Vodafone KK’s competitors in Japan engaged our company Eurotechnology Japan KK to analyze Japan’s roaming market, and help our client to develop strategy to better compete with Vodafone KK’s roaming products, which were aggressively marketed, and the core of Vodafone KK’s marketing focus).
Another example was Vodafone KK’s strategic focus on Japan’s prepaid market. In 2006 there were about 2.6 million prepaid mobile phone customers in Japan, i.e. about 2.7% of the market, while DoCoMo had about 45,200 prepaid subscribers, i.e. about 0.09% of DoCoMo’s subscribers were prepaid customers. Since the prepaid market in Europe (especially Italy where about 1/2 of the market is prepaid) is extremely important and highly profitable, Vodafone decided on the strategy to focus strongly on the development and growth of Japan’s prepaid market. Almost at the same time however, a national campaign started in Japan linking unregistered and illegally traded prepaid mobile phones to crime, and a law was proposed in Japan’s parliament to outlaw any type of prepaid mobile phones. Thus Vodafone KK found itself on the one hand promoting and investing to develop prepaid mobile phone services in Japan, developing, purchasing (as was the business model in Japan at that time) and bringing to market special prepaid handsets, and organizing national media campaigns promoting Vodafone prepaid mobile phones, while at the same time on the other hand facing the possibility that Japan’s parliament would outlaw these same prepaid mobile phones, and a broad press and TV national discussion on how prepaid mobile phones are linked to crime. The end result was, that instead of outlawing prepaid mobile phones, it was decided to introduce far stricter registration requirements and ID requirements for mobile phones and especially for prepaid mobile phones, and the unauthorized/unregistered sale or transfer of prepaid mobile phones in Japan was made a crime. The end effect for Vodafone of course was a commercial failure of Vodafone’s prepaid mobile phone campaign, in addition to a general decrease of ARPU (average revenue per user).
As a consequence of these and other factors, Vodafone KK’s market share continuously decreased, subscribers moved from Vodafone KK to DoCoMo and KDDI/au, and the financial performance of Vodafone KK deteriorated, in the end convincing Vodafone that the best option was to sell Vodafone’s Japan operations and terminate business activities in Japan.
You can find further details and statistics, financial performance and market share data during this period in our Softbank report.
Bloomberg: Vodafone-Japan CEO Tsuda seeks growth in Japan, not sale
About one year ago, in an interview with Bloomberg (“Vodafone KK’s Tsuda seeks growth in Japan, not sale“), I mentioned that a sale of Vodafone’s Japan operations to Softbank might be the way Vodafone will go in Japan. This seems to be happening now and negotiations to this effect were confirmed by both Softbank and Vodafone over the weekend.
The potential deal
Although a deal has not been closed yet, it is widely reported that a sale of Vodafone’s Japan operations to Softbank is very likely to be closed within a few weeks. What could this deal look like?
As reported by Bloomberg Vodafone KK’s capitalization at the point of delisting from the Tokyo Stock Exchange was around YEN 1.4 Trillion (= about US$ 12 Billion). Bloomberg mentions estimations by London based analysts who value Vodafone KK in the range US$ 14 to 16 Billion. Of course, if a deal is actually concluded, it might be a complex deal with several components, not just a simple cash price, and any cash value will not be determined by analysts in London, but on the negotiating table between Softbank and Vodafone, and the final deal could be more complex than a simple sale against cash payment.
In any case, this deal – if it happens – promises to become one of the largest M&A transactions ever in Japan sofar in terms of cash value. Vodafone is reported to prefer a cash deal, and Softbank has been reported to consider a leveraged buy-out (LBO) where Softbank will take debt against the to-be-acquired company.
It has also been reported that Softbank seems to be planning to change the name of the resulting company, so the “Vodafone” brand is not likely to survive in Japan.
What is Softbank likely to do with Vodafone’s Japan operations
An acquisition of Vodafone’s Japan operations will be the completion of Softbank‘s march to build a full-scale telecommunications group on a par with NTT and KDDI through a series of acquisitions plus internal growth.
Softbank in this new shape will become a much more serious competitor for NTT and KDDI, which both have succeeded to transform themselves from former monopolies into some of the world’s most advanced telecom operators.
In a sense Softbank is already where DoCoMo and KDDI are working very hard to get to: DoCoMo and KDDI are working hard to build content and transaction businesses (such as shopping, financial services, auctions and music), because pure traffic revenue (ARPU) is driven down by relentless competition.
Softbank is strongly linked to YAHOO-Japan, and YAHOO-Japan demonstrated it’s strength by driving eBay out of Japan – so Softbank is already where DoCoMo and KDDI want to go. All Softbank still needed was a wireless network, and with a Vodafone acquisition, Softbank will have a wireless network much faster than expected.
A Vodafone/Softbank deal will not be a good development for eAccess/eMobile, and eAccess/eMobile is reported to have submitted documents to Japan’s regulatory authorities regarding Softbank’s wireless license. It will be interesting how the regulating government ministry will decide on the regulatory aspects of any Softbank/Vodafone deal. In the past few years Japan’s government has been singularly focused on creating the conditions to make Japan the most advanced IT market in the world, so I think we can be confident to expect a wise decision – wise for Japan, not necessarily beneficial for particular mobile operators.
What made Vodafone change it’s mind about Japan?
As reported by Bloomberg, one year ago Vodafone had the clear intention to remain in Japan for the next 10, 20, 30 years. What made Vodafone change it’s mind?
As widely reported, Vodafone was loosing market share in Japan’s mobile phone market over the last several years.
With number portability being introduced in Japan from autumn 2006, and with three new operators entering the market during 2006-2007, the competitive environment will become much more severe than it is now, decreasing pure network profitability, while at the same time massive network investments are necessary.
Analysis of Vodafone-Japan’s subscriber numbers shows that early warning signs appeared already in 2002 – 2002 would have been the time for Vodafone to take decisive action to turn the business around in Japan.
Today’s top article in Nikkei is about Cable and Wireless-Japan: the article reports that Cable and Wireless is in discussion with Softbank and a private equity firm to sell their Japan operations. Apparently this news article is not confirmed, and it already mentions a purchase prize on the order of US$ 100 million. This article appeared in the top position in Nikkei – but there are several things a bit mysterious about it.
I did not follow Cable and Wireless recently in Japan, but it seems that C&W made a loss of YEN 61.6 OKU on sales of YEN 713 OKU, i.e. almost 10% loss.
Spent all morning discussing with one of the innovation managers of a big European telco. Interesting. Spent afternoon with a US bio-tech company which which is thinking of asking us to build their business in Japan, and in the evening listened to a talk by Tadashi Onodera, the CEO of KDDI. Expected him to talk mainly about mobile – but he did not. His focus was a national VOIP network they are building, attacking the fixed line income of NTT. Got hold of him after his talk and discussed with him for about 10 minutes.
UPDATE: on October 26, 2004, Softbank announced the acquisition of Cable & Wireless IDC. Total cost of the acquistion is announced as YEN 12.3 billion (= US$ 110 million)
