Softbank agrees to purchase ARM Holdings

Excitement filled the voices of investors at the opening of trade this week following an announcement from Japanese multinational Softbank Group agreeing to buy British microprocessor chip maker ARM holdings for a staggering $32 billion in what will become the biggest takeover purchase by the internet and telecommunication giant.

ARM holdings main product of microprocessor chips which are used in big name brand smartphones such as Apple and Android will diversify Softbank's mix of businesses within the realm of technology.

But with such a hefty price tag, was the takeover all that worth it for Softbank?

Only recently the company saw its president Nikesh Arora resigning from his position because of uncertainty pertaining to the supposed transition to a more leading role as CEO currently held by founder Masayoshi Son who head hunted Arora from Google's executive team. Son hoped to install Arora as CEO to replace himself after his retirement having found him to showcase the same traits his used in the last 34 years in funding fledgling businesses that held exponential value for the future, his most notable being Alibaba.

However Son's abrupt decision to pull back his retirement plans directly influenced Arora's resignation with questions raised over the company's strategy given management's willingness to pay a handsome premium for this latest takeover.

SoftBank to buy Britain’s ARM for $32 billion in record deal: https://t.co/e9pxriChNr

— Bloomberg Deals (@BloombergDeals) July 18, 2016

Adding further to this is the growth of sales in smartphones steadily declining with recent figures indicating the first year on year decline. This doesn't bode well for ARM holdings whose positioned itself as the leader in the market for microprocessing chips for these devices. A decline in sales will inevitably see a drop in the number of chips sold.

Some might argue that a slight decline in sales growth is insignificant given the quantities of smartphones manufactured however it does set in trend a downward bias that'll leave investors unsure of the outlook growth. If this is indeed the case the market for microprocessor chips in smartphones may have reached maturity implying a slowdown in a previously expanding sector.

Purchasing a business in a receding market for its product isn't an optimal decision to be made because of the additional risks it adds to the equation. Taking into account Softbank has divested a sizable amount of its existing businesses in Alibaba and Supercell, the cash generated from the sale of these assets aren't enough to cover the $32 billion price tag which means management will be digging itself further into debt  as expressed in its intention in the announcement.  

Although it must be said that the tense state the global economy is in, an option for investors to shelter themselves from extreme uncertainty is in defensive stocks, with Softbank falling into this category of company with operations in telecommunications, a necessity throughout the world. But in saying this one wonders the viability of such thought when the company is so indebted.