Arm ready to regain control of renegade Chinese unit after nearly 2 years of battle

Arm is set to regain control of its renegade joint venture in China, which would remove a significant obstacle to SoftBank’s plan to take the British chip designer public.

Government trade records on Thursday night in Beijing showed Arm China chief Allen Wu had been stripped of all his posts at the company, paving the way for a new corporate ‘chop’ – whereby official documents are allowed – to be done.

Replacing Wu in the crucial post of legal representative, Liu Renchen, a government adviser and vice dean of a city research institute, takes Wu’s place. Liu and Eric Chen, managing partner of the SoftBank Vision Fund, are expected to become co -CEO.

The nearly two-year battle began after Arm China’s board learned that Wu had set up a personal investment fund which then invested in its Chinese clients.

Despite a resounding vote by the board of directors to remove him in June 2020, Wu refused to leave and instead took control of the company by owning the company chop.

The board said Wu had taken the company “hostage” in a letter to shareholders seen by the Financial Times. He quickly fired several senior executives he deemed loyal to headquarters, replacing those responsible for finance, legal and human resources with “unqualified people who are loyal to him”, the letter said.

Wu also installed its own security team in its Shanghai offices to prevent Arm and Hopu representatives from entering.

The standoff lasted for months as the Chinese government maneuvered to use the standoff to secure the country’s access to Arm’s chip designs, which are used in almost all smartphones.

Last month, Arm began moves to transfer its shares in the China unit to SoftBank in a bid to circumvent the rogue firm in China. The tactic appears to have prompted Chinese officials to act lest they lose Arm’s direct involvement in the company.

China is a crucial growth market for Arm and contributes a large portion of its profits. But Arm was unable to audit the Chinese unit’s finances, a big hurdle for the IPO. Arm holds a 47.3% stake in Arm China, while Chinese investment firm Hopu controls a 36% stake.

The dispute was complicated by Wu’s control of a large block of Arm China stock, which he “secretly acquired”.[ed] control” of 2019, according to the council letter.

When the joint venture was formed in 2018, the documents listed another person’s name, who was widely known in China to be a replacement for Wu, or a white glove, but it appears that Arm didn’t not been aware.

Wu has used shareholders under his control to launch three separate lawsuits against Arm China challenging the board’s decision to remove him, among other issues.

A Shenzhen court allowed Wu to be both plaintiff and defendant in the cases, meaning he was essentially suing himself. Yet no real hearing was ever held, and it was clear that the intervention of senior Communist Party officials was needed to resolve the situation.

Wu fought to stay in control until the very last minute. In an interview with Chinese media on Thursday, he attacked Arm and SoftBank as foreign shareholders trying to thwart the development of the country’s semiconductor industry, a top priority for Beijing. He said their plans to take him down were illegal.

“SoftBank released fake news that it was able to reach a settlement with some officials [for Arm China] becoming a foreign-controlled entity is a flagrant violation of the law! Wu told ijiwei.com, a Chinese chip industry media outlet with public investors.

The article ended with Wu comparing his personal battle with China’s fight against Covid-19. “[It] will keep coming, maybe faster each time, but in the end we will overcome it,” he said.

In a statement, Arm said, “Arm China is resolving its long-standing corporate governance issue, and its board voted unanimously to appoint Liu Renchen and Eric Chen as joint -CEO of Arm China. Mr. Liu has also been duly registered and accepted by local government authorities in Shenzhen as the company’s legal representative and general manager.

Arm China said on Friday that the company’s records modification process contains “major legal loopholes” and that it will use legal proceedings to “safeguard its legitimate rights and interests”.

SoftBank did not respond to requests for comment.

Additional reporting by Nian Liu in Beijing

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