Arm strengthens with £502m US deal

CAMBRIDGE-based chip designer Arm Holdings is buying into the US for $913m (£502m) in one of the biggest technology deals this year.

It will spend $225m cash on Californian counterpart Artisan, with the balance in the form of about 350m shares in a move that it hopes will vastly multiply the amount of computer and phone gadgetry running on Arm-designed chips.

Warren East will remain chief executive of the enlarged Arm whose employee base will grow by about 340. Around 26% of the new shareholder base will be made up of Artisan investors.

East said: 'The deal is consistent with the strategy we have been talking about for some time - we are interested in putting Arm technology in every imaginable product and looking for more return from every product carrying an Arm-designed chip.'

Arm designs chips for 80% of the world's mobile phones and has recently been making forecast-busting profits with the ever greater use of its designs to power the fast-growing market for digital cameras and in-car computers.

Finance director Tim Score said: 'To use an analogy of how our two businesses will fit for designing micro-processors, Arm is like the engine of a car while Artisan provides the intellectual property to help build the chips around those engines.'

But the market took a dim view of the deal, expected to complete during the fourth quarter of this year, with investors marking Arm shares down 13p to 87 1/2p, wiping £133m off its market capitalisation. Concerns included Arm's use of its cash reserves.

Artisan has a cash pile of about $140m while Arm is sitting on $300m. After paying for the acquisition and investment banking fees, an enlarged Arm would be left with about $170m cash.

Stitching the two firms together will combine Arm's channel to more than 130 silicon manufacturers-with Artisan's sales links to more than 2000 companies.

Artisan chief executive Mark Templeton will join Arm as an executive director while chairman Luci Lanza will be a non executive.

Arm directors accounting for 2.7% of the firm's shares have agreed to vote in favour of the deal, as have Artisan directors with around 4.6% of their company.

Templeton will have the second-largest shareholding of the Arm directors, with around 0.6% of the shares, after Arm chairman Sir Robin Saxby who will see his stake diluted to around 2%.

Artisan has agreed a $31m break fee if it pulls out of the deal in favour of a competing offer.