Vision vehicle 1 (VF1), a $100 billion investment vehicle that SoftBank Group Corp. formed in 2017, is in talks to buy the 25% share in Arm Ltd. that SoftBank Group Corp. does not directly hold. This might be good news for investors who have been waiting years for strong returns, according to a Reuters report quoting information from people with knowledge of the situation.

The conversations take place as SoftBank, which presently owns 75% of Arm, plans to float the chip manufacturer on Nasdaq next month at a valuation of $60 billion to $70 billion.

The Japanese tech investor would be providing a significant, immediate profit to VF1 investors, notably Saudi Arabia’s Public Investment Fund and Abu Dhabi’s Mubadala, if the negotiations result in a transaction.

Many of SoftBank’s bets on startups, like workspace provider WeWork Inc. and ride-sharing company Didi Global, backfired, leaving them nursing losses.

Given the size of the investment, the alternative — allowing VF1 to sell its Arm shares in the stock market over time after the initial public offering (IPO) — would generally take at least one to two years. Additionally, it would pose a greater risk to the fund’s investors because it’s likely that Arm’s shares could decline after the IPO.

Thanks to investors’ enthusiasm for artificial intelligence increasing the value of some of the firms it invested in, VF1 achieved profitability in the most recent quarter.

Though $56 billion of the Vision Fund 2 (VF2)’s funding originated from the Japanese company and its executives, including Chief Executive Masayoshi Son, SoftBank was unable to find outside investors due to its prior losses.

Although SoftBank presently has no intentions to do so, the sources claim that a sizable payoff for VF1 investors could increase SoftBank’s prospects of later turning to them for funding.

Son has disqualified himself from VF1’s deliberations on the topic so that the fund can decide independently in the interest of its investors, according to the sources. Son has recruited investment bank Raine Group to help SoftBank on the negotiations.

Negotiations are being handled by the investment committees of VF1 and SoftBank, as well as the investment advisory board of fund investors, according to one of the sources.

It was impossible to determine the precise price that the two parties were contemplating for Arm as part of their transaction, and the sources issued a warning that an agreement might not be achieved.

According to the sources, who asked to remain anonymous since the negotiations are private, if a deal is reached, SoftBank would be selling fewer Arm shares in the IPO and would most likely be keeping a holding of between 85% and 90%.

Arm, VF1, and SoftBank all declined to comment. Requests for comment from Raine were not immediately answered.

Arm’s IPO would be beneficial not only for VF1, but also for SoftBank, which last week disclosed its third straight quarterly loss. It suffered losses in the value of significant investments like American wireless provider T-Mobile U.S., German telecoms company Deutsche Telekom, and Chinese e-commerce behemoth Alibaba Group.

In 2017, VF1 purchased a 25% share in Arm from SoftBank, who had purchased the business for $32 billion in 2016. A number of technology firms, including Amazon.com Inc (AMZN.O), have also been in discussions with SoftBank about becoming cornerstone investors in Arm before its initial public offering, according to Reuters.

Last week, SoftBank said that VF1 generated a gain of $12.4 billion on investments totaling $89.6 billion, while VF2 suffered a loss of $18.6 billion on investments totaling $51.8 billion.

The massive investment firm has been operating in “defence mode” since May 2022, when technology valuations plummeted in the face of rising interest rates and a shaky economy. However, Son declared in June that he intended to switch to “offence” mode amid anticipation about developments in artificial intelligence.

After a deal to sell Arm to Nvidia Corp. for $40 billion fell through last year due to concerns from American and European antitrust regulators, SoftBank started making plans for an IPO of the company.

For its IPO, Arm had been mulling an offering of up to $10 billion. Its plans to list come as significant firms, such as grocery delivery service Instacart and marketing automation startup Klaviyo Inc, get ready to list in New York, signalling the beginning of a comeback in the U.S. IPO market following a dry period that lasted a year and a half.

Earlier this year, Arm indicated it would explore an IPO on a U.S. exchange in response to a British government effort to list its shares in London.

Because it licences designs rather than spending money to develop processing systems itself, Arm’s business has performed better than that of the larger chip sector. Its technology is now widely used in data centres and smartphones, generating significant royalty income.

However, the recent decline in smart phone demand has hurt Arm’s revenues.

Rene Haas, the chief executive of Arm, was invited to join SoftBank’s board of directors in April as a reflection of the company’s importance to the company’s investment portfolio.

(Adapted from Reuters.com)