SoftBank wins key corporate battle in China by ousting defiant CEO from Arm joint venture
- Arm China has registered Liu Renchen, a deputy dean at the Research Institute of Tsinghua University in Shenzhen, as its new legal representative
- The development paves way for SoftBank to proceed with plans to list UK-based Arm on the Nasdaq
SoftBank Group Corp is on track to win a key corporate battle by ousting a defiant chief executive from a Chinese joint venture of British chip designer Arm, in a two-year drama that has ended with the apparent help of the Chinese government.
Arm China has registered Liu Renchen – a member of Shenzhen’s political advisory committee and a deputy dean at the Research Institute of Tsinghua University in the southern city – as its new legal representative, replacing incumbent CEO Allen Wu, according to a company statement published on Thursday on Chinese social media platform Weibo.
The registration was filed with the Shenzhen market regulator on April 28, Arm China said.
Eric Chen, a managing partner at SoftBank Vision Fund who has been leading the Japanese conglomerate’s negotiations with the Chinese government, has been named co-CEO of Arm China, along with Liu. Arm China’s Weibo account is now the entity’s “sole official channel” for corporate news, overriding all other channels that may still be controlled by Wu, according to the statement.
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Shenzhen’s decision to change the corporate registry, issue a new licence, and grant a new company chop is a sign that Wu, who had maintained de facto control of Arm China after he challenged a boardroom decision to oust him in June 2020, has lost the legal grounds and political blessing to remain in his seat, according to experts.
Sufficient documentation, including proof of a boardroom decision, is required for any registry amendments, said Xia Hailong, a lawyer at the Shanghai-based law firm Shen Lun. “From a legal perspective, the change has already taken effect.”
The Shenzhen municipal government has refrained from making any public comments about the fight between SoftBank-owned Arm and the Chinese management team headed by Wu, who joined Arm in 2004 and had served as CEO of the mainland joint venture since 2018.
As the saga dragged on, Wu had described his control of Arm China as a patriotic move designed to help China achieve technological self-sufficiency. While the country is determined to accelerate its push towards sophisticated home-grown semiconductors, it has also been trying to show a friendly face to foreign investors, especially those holding technologies that the country still needs.
A Politburo meeting last week chaired by President Xi Jinping concluded that China must insist on further opening and “proactively respond to demands from foreign investors regarding the ease of doing business in China”.
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Arm said last week it had “resolved a governance issue” at Arm China, but Wu tried to resist the expulsion.
On April 29, Arm China, under the control of Wu, issued a statement saying that the Shenzhen Administration for Market Regulation’s decision to process the registry change was “legally flawed” and the company would challenge the decision by legal means.
On the same day, the firm said in a public letter issued on Chinese messaging app WeChat, signed by executives and employees, that they “refused to be controlled by SoftBank” and would “firmly follow the leadership of Allen Wu” to make Arm China “a great Chinese technology company”.
Unlike two years ago, when a similar open letter signed by Arm China’s employees to endorse Wu became widely circulated, last week’s letter was quickly censored on social media. Wu’s name is no longer in the updated list of Arm China’s board members, according to database Tianyancha.
In an interview with the South China Morning Post last week, Wu, who controls a 16 per cent stake in the joint venture, said SoftBank’s efforts to wrest back control of Arm China posed risks for the country's supply chain security and technological self-sufficiency efforts.
An article published on Thursday in the People’s Daily, mouthpiece of the ruling Communist Party, citing unnamed “industry experts”, partially supported Wu’s argument.
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The latest development is hardly a victory for SoftBank because “solving this problem had led to a large decrease in Arm's stake in Arm China, so much that maybe it is difficult to even call the venture Arm China any more”, said Stewart Randall, head of electronics and embedded software at consultancy Intralink.
For foreign investors, “most will think twice before doing a joint venture in China” after watching the case unfold in the last two years, Randall said.
Arm, whose chip architecture is pervasive in smartphones, licenses its chip designs to Chinese clients via Arm China. The mainland joint venture's business has been growing steadily and accounted for most of Arm’s global growth over the past few years. Arm China’s revenue is poised to reach US$900 million this year, up from US$700 million in 2021, according to Wu.
