Some 17 funds in the Investment Association universe have a top 10 position in UK semiconductor and software design firm ARM Holdings, which has surged this morning on the back of news that it is to be acquired by Japan's SoftBank. 
The Cambridge-based firm’s shares jumped by 45 per cent when the FTSE 100 opened after it was announced that SoftBank will pay £24bn for it. SoftBank is one of the world's biggest technology companies and has previously acquired Vodafone's Japanese operations and the US telecoms company Sprint.
ARM, which was founded in 1990, designs microchips used in most smartphones including those from Apple and Samsung. ARM’s board recommends shareholders accept the offer, which is around a 43 per cent premium to its closing market value of £16.8bn on Friday.
Stuart Chambers, chairman of ARM, said: “It is the view of the board that this is a compelling offer for ARM shareholders, which secures the delivery of future value today and in cash. The board of ARM is reassured that ARM will remain a very significant UK business and will continue to play a key role in the development of new technology.”
“SoftBank has given assurances that it will invest considerably in the business, including doubling the UK headcount over the next five years and maintaining ARM's unique culture and business model. ARM is an outstanding company with an exceptional track record of growth. The board believes that by accessing all the resources that SoftBank has to offer, ARM will be able to further accelerate the use of ARM-based technology wherever computing happens.”
FE data shows that 17 funds have a top 10 holding in the company, with Aleem Siddiqui’s £41.2m Close FTSE techMARK having the highest allocation at 9.42 per cent as it tracks the FTSE techMark Focus index.
Source: FE Analytics
Gerard Callahan’s £125m Baillie Gifford UK Equity Alpha is the active fund with the highest allocation to the stock – it’s the portfolio second largest position as it makes up 7.4 per cent of the managers’ total AUM.
Audrey Ryan and Iain Buckle’s Kames Ethical Cautious Managed fund is the largest on the list with assets of £575m, followed by Peter Michaelis and Simon Clements’ £536.9m Alliance Trust Sustainable Future Managed and Michaelis and Neil Brown’s £314.8m Alliance Trust UK Ethical funds.
Laith Khalaf, senior analyst at Hargreaves Lansdown, points out that ARM has seen a 67 per cent rise in its share price since referendum day, thanks in large part to the fact that sterling is so weak and less than 1 per cent of the stock’s revenues come from the UK.
Performance of stocks vs index over 5yrs
Source: FE Analytics (note: does not include today’s rise)
“ARM has been a great British success story, though it has been a key beneficiary of the global expansion of the smartphone market, driven of course by Apple,” he added. “The future looks bright too, as mobile computing will grow for years to come, with increasing demand for microchip designs that can power the devices which constitute the expanding internet of things.”
Helal Miah, investment research analyst at The Share Centre, says that investors now need to decide whether to take profits in the coming or to wait and see if the share price increases further if any other bidders emerge.
“The share price first thing this morning was trading above the £17.00 cash offer price and roughly 48x higher than expected 2016 earnings,” he said.
“This premium suggests that the market thinks it may be possible that a bidding war could ensue as there have been a number of other tech firms rumoured to be interested in the company over the last few years, including industry giant Intel. However, Softbank’s offer price which is at a hefty 43 per cent premium to Friday’s close price may be deliberate to put off bidders.”
“This would not be a bad time to take profits but we continue to recommend ARM Holdings as a ‘hold’ for investors willing to accept a higher level of risk and for those adventurous enough to wait and see if there is a bidding war which could drive the price up higher.”
