How SoftBank played it safe in pricing Arm's blockbuster initial public offering (IPO)
Arm's blockbuster initial public offering (IPO) was oversubscribed by 12 times, and could have been priced at $52 per share, above the indicated range of $47 to $51, people familiar with the matter said. But the bankers, who had huddled at the offices of SoftBank's financial advisor Raine Group, argued it was better to leave the additional $1 per share -- equivalent to about $1 billion in value -- on the table. They said doing so could yield a bigger pop when the stock debuts on Nasdaq on Thursday, projecting it could trade between $57 and $62 based on feedback from investors.
Son accepted the banks' recommendation, valuing Arm at $54.5 billion on a fully diluted basis. The behind-the-scenes details on the IPO pricing decision are based on interviews with three people familiar with the discussions. Together with other previously unreported deliberations, they shed new light on why SoftBank took a conservative approach in valuing Arm in the IPO.
SoftBank, which had owned 75% of Arm, agreed to buy the remaining 25% from its $100 billion Vision Fund at a $64 billion valuation last month. That decision came because SoftBank was concerned that the Vision Fund remaining an investor would weigh on Arm's shares after the IPO, given that it would be seeking to cash out quickly, the sources said. At the same time, the deal allowed SoftBank, which has previously explored raising a new private equity fund, the chance to boost the Vision Fund's returns, the sources said.
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