Arm Battle with China’s CEO escalates, complicating the sale of SoftBank

Photographer: Kiyoshi Ota / Bloomberg

The battle for control China’s Arm Ltd. business escalates with new lawsuits to keep controversial unit chief executive in power, further complicating SoftBank Group Corp. efforts to sell the business to Nvidia Corp.

The dispute erupted nearly a year ago in June after the council voted to fire Arms chief executive Allen Wu over conflicts of interest, but he refused to leave. Now, the Chinese unit, which remains under Wu’s control, has filed lawsuits against three senior board directors appointed to replace him, according to people familiar with the matter. The previously undeclared suits could take years to resolve, suggesting that Wu could remain entrenched.

Wu fired the three men – including co-CEO Phil Tang – but they were later reinstated by the council. In the new lawsuits, Arm China is suing the trio, demanding the return of the company’s property, according to the people.

Arm China declined to comment on any ongoing legal cases or possible settlement discussions. Indeed, the three directors caused “material damage” to the company and were dismissed for legitimate reasons.

Tang did not return requests for comments. Arm Ltd. declined to elaborate, saying it would not comment on ongoing legal issues.

Complex combat has called into question the future of Arm, whose semiconductor technology is the world’s most widely used smartphone and is increasingly being implemented on computers. SoftBank founder Masayoshi Son agreed to sell the British chip designer to Nvidia for $ 40 billion last year, but the path to completing the transaction is becoming increasingly difficult.

China’s dispute also raises questions about Beijing’s willingness to protect foreign investment in the world’s second-largest economy. Arm Ltd. sold a majority stake in the Chinese unit to a consortium of investors, including Beijing-backed institutions. This has complicated the efforts of the British company to manage Arm China and Wu, which receive support from local authorities in Shenzhen.

Both sides seem to be at an impasse. Wu, a Chinese-born US citizen, gave up signing tens of millions of dollars in settlement agreements if he left the company, people said, asking not to be identified when talking about legal issues. At the same time, two minority shareholders in Arm China linked to Wu have filed lawsuits to revoke his June 4 dismissal, they said.

SoftBank opened negotiations with him last year and hopes to reach some sort of resolution, they said. Instead, the fighting is deepening, and the Japanese company has worsened due to the increasingly complicated dispute, people said. SoftBank is now resigned to letting the lawsuit run its course and there are no current negotiations with Wu, according to one of the people.

“We are going through a change of leadership in China; It takes time to resolve, “said Arm Ltd. CEO Simon Segars an interview with Bloomberg Television recently. “It’s hard. But we’re sure it will work out.”

SoftBank and Nvidia declined to comment on the dispute in China.

Arm China said in a statement that Wu’s position “complies with the legal registration and is confirmed by Chinese law and regulations.”

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The distance gives a relatively unknown influence of the executive on one of the most important pieces of technology in the industry, on the largest internet and semiconductor market in the world. Chinese companies need unrestricted access to Arm products to continue the country’s attempts to become independent in terms of chip technology, an area where it is heavily dependent on imports. Beyond resolving the stalemate, Nvidia and SoftBank also need Beijing to sign their agreement, and it is unclear whether Wu’s presence would complicate this.

Wu’s possession of Arm China is due in part to local laws that make it difficult to change control of a company, unless you physically have control of the stamp and registration documents. He refused to give them up and used the company’s funds to pay the legal fees incurred in his attempt to combat his dismissal, people said.

Arm China said that the payment of legal fees “is made in accordance with the company’s policies, as well as with the laws and regulations of China.”

His ultimate goals appear to be a large cash payment and immunity to further legal action, according to people who spoke to him. Inside Arm China, which is responsible for selling licenses for its chip projects and core technology in the country, Wu told local staff he was not going anywhere. Recently, he gave employees Chinese New Year gifts in cash in a red envelope with his last name on it.

Arm China said the money came personally from Wu to show his appreciation for colleagues, a Chinese New Year tradition in the country.

Hearings are expected for the three directors at the end of May, said one of the people. Separately, two minority shareholders in Arm China sued the Chinese entity in Shenzhen to overturn the council’s decision to remove Wu. The two cases are now being merged and hearings are scheduled for the end of April, people said.