SoftBank Group Corp.’s efforts to sell the Arm Ltd.’s China business to Nvidia Corp has been further complicated as the battle for control of the business is escalating with new lawsuits aimed at keeping the unit’s controversial Chief Executive Officer in power.
Almost a year ago in June, the dispute erupted after the board voted to oust Arm China CEO Allen Wu for conflicts of interest, but he refused to leave. Now the Chinese unit has filed lawsuits against three senior executives the board designated to replace Wu, who remains under control of the business, according to Bloomberg’s sources.
Wu fired the three men including Phil Tang, co-CEO, but they were subsequently reinstated by the board. Arm China is suing the trio, in the new lawsuits, demanding they return company property.
Arm China declined to comment on any ongoing legal cases or possible settlement talks, however, they did say that the three executives had caused “material damages” to the company and legitimate reasons were behind their termination.
Masayoshi Son, the founder of Japanese company SoftBank, agreed to sell the British chip designer to Nvidia for $40 billion last year, but the complex tussle has thrown into question the future of Arm.
The China dispute also raises questions about the world’s second-largest economy, China’s, willingness to protect foreign investment. Arm Ltd., whose semiconductor technology is the world’s most widely used for smartphones and is increasingly deployed in computers, sold a majority stake in the China unit to a consortium of investors, including Beijing-backed institutions. That has created further complications for the British firm to manage Arm China and Wu, who has support from local authorities in Shenzhen.
A stalemate seems to have been reached. Wu, a Chinese-born U.S. citizen, refused to sign settlement agreements worth tens of millions of dollars if he would leave the company, the sources have said. At the same time, two minority shareholders in Arm China linked to Wu have filed lawsuits to overturn his June 4 dismissal, they said.
“We are going through a leadership change in China; it’s taking time to resolve,” said Arm Ltd.’s Chief Executive Officer Simon Segars in an interview with Bloomberg Television recently. “It’s hard. But we are confident that’s going to get resolved.”
Arm China said in a statement that Wu’s position “is compliant with legal registration and confirmed by China law and regulations.”
According to Bloomberg, “the standoff accords a relatively unknown executive outsized influence over one of the industry’s most important pieces of technology, in the world’s biggest internet and semiconductor market. Chinese companies need unfettered access to Arm’s products to push forward with the country’s attempts to make itself more independent in chip technology, an area where it’s largely reliant on imports.” Beyond resolving the stalemate related to the leadership, SoftBank and Nvidia will also need Beijing’s signoff to seal their longstanding deal, and it’s unclear whether Wu’s presence would complicate that.
Local laws also have a hand in Wu’s hold on Arm China, which makes it difficult to shift control of a company unless you’re physically in control of the registration documents and company stamp. Wu has refused to give the materials necessary up and has used company funds to pay for legal fees incurred in his attempt to fight off his dismissal.
Arm China said payment of legal fees “is made in compliance with company policies as well as China laws and regulations.”
His ultimate goals appear to be immunity from subsequent legal action and a large cash payoff, according to people who’ve spoken with him. Wu has told local staff he’s not going anywhere and recently gave employees Chinese New Year cash presents in a red envelope with his surname on it, which can be interpreted as a precautionary move to increase loyalty. However, Arm China clarified that the money came personally from Wu to show his appreciation to colleagues, a tradition at Chinese New Year in the country.
In late May, hearings in the case against the three executives are expected to take place. Separately, Arm China’s two minority shareholders have sued the Chinese entity in Shenzhen to nullify the board’s decision to remove Wu.
Son told investors as recently as February that he expects to close the Arm sale and “I don’t have any Plan B.”
The Chinese government has not made any clarifications about its position on the Arm China leadership struggle. However, Arm China has several government-backed shareholders including sovereign wealth fund China Investment Corp. and the Silk Road Fund.
Segars said that the ten-month standoff hasn’t hurt Arm’s business in China and that the prolonged process of changing leadership in China is because of lack of travel for face-to-face meetings during the pandemic.
“When we announced the deal in September, we said it would take about 18 months,” he said. “We remain confident in that timeline.”