Arm transfers its stake in Arm China to a blank check company to speed up IPO

British chip designer Arm has transferred its shares in its China joint venture to a special purpose acquisition company that it jointly owns with its parent SoftBank, Chinese news outlet Caixin reported on Thursday.

Following the transfer, Arm will end up owning less than 20% of Arm China, which could help the SoftBank-backed company accelerate its IPO in the US.

Headquartered in Shanghai, Arm China is a joint venture between Arm and a Chinese consortium led by private equity firm Hopu Investments. Arm controls a 47% stake in Arm China, while Chinese entities hold a 51% stake and can decide the company’s future.

After SoftBank bought Arm for $32 billion in 2016, Arm China’s onetime chief executive officer, Allen Wu, took control of the country’s operations. In 2020, the board of Arm China fired Wu for conflicts of interest but he reportedly refused to leave and continues to run the company on a daily basis.

Under Wu’s control, Arm China refused to open its books to UK-based Arm, which hindered the latter’s IPO process. Arm, which plans to go public in March 2023, needs to disclose all of its financial performance and sources of revenue, including those from China, to regulators.

Therefore, by transferring the shares to the blank check company, Arm can treat Arm China as an investment rather than a subsidiary to solve the audit issue.

In a brief statement sent to Caixin, Arm said the decision to transfer its stake in Arm China was made after taking an “accounting reason” into consideration. It added that the move will not change the role of Arm China as a major distributor of Arm’s intellectual property in China, meaning that it will continue to get licensing revenues from Arm China.

The IPO plan comes after SoftBank’s proposal to sell Arm to Nvidia was blocked late last year. In December, the US Federal Trade Commission sued to block Nvidia’s $40 billion acquisition of Arm, saying the deal would give one of the largest chip companies control over the computing technology and designs that rival firms rely on to develop their own competing chips.

Last month, Reuters reported that SoftBank was planning to pick Goldman Sachs Group as the lead underwriter on Arm’s IPO that could value the company at as much as $60 billion. 

Still, it remains unclear if the share transfer was approved by Wu, who holds Arm China’s seal needed for corporate transactions. According to the rebel commander, Arm China may be listed in Shanghai or Hong Kong in 2026 or later.