Mysterious firm seeks to buy majority stake in Arm China

Chinese joint venture's ousted CEO tries to hang on - who will get control?

The saga surrounding Arm's joint venture in China just took another intriguing turn: a mysterious firm named Lotcap Group claims it has signed a letter of intent to buy a 51 percent stake in Arm China from existing investors in the country.

In a Chinese-language press release posted Wednesday, Lotcap said it has formed a subsidiary, Lotcap Fund, to buy a majority stake in the joint venture. However, reporting by one newspaper suggested that the investment firm still needs the approval of one significant investor to gain 51 percent control of Arm China.

The development comes a couple of weeks after Arm China said that its former CEO, Allen Wu, was refusing once again to step down from his position, despite the company's board voting in late April to replace Wu with two co-chief executives. SoftBank Group, which owns 49 percent of the Chinese venture, has been trying to unentangle Arm China from Wu as the Japanese tech investment giant plans for an initial public offering of the British parent company.

According to the South China Morning Post, Lotcap claimed in the press release that its proposed deal has "support" from Arm. We asked Arm about this, and despite a spokesperson saying in an email to The Register that the British chip designer is "not commenting at this time," the representative did say that an updated press release from Lotcap does not mention Arm or SoftBank supporting Lotcap's deal.

We were not able to obtain the original version of Lotcap's press release, so we couldn't verify whether any changes were made in its wording.

The intrigue doesn't stop there. The 21st Century Business Herald newspaper in China apparently talked to an unnamed official at Arm China, who said the joint venture had not been informed of any ownership change, according to the South China Morning Post.

While Lotcap said it has a letter of intent to buy the 51 percent stake in Arm China, reporting by the South China Morning Post indicated that it still needs to convince Wu, the ousted CEO who owns a roughly 16 percent stake in the joint venture, to sell his shares.

The newspaper, citing people close to Wu, said Lotcap has struck an agreement with Chinese private equity investor Hopu Investment, which has a 36 percent stake in Arm China through an entity in Hong Kong.

The newspaper added that Lotcap and Hopu "want to talk to Wu" to bring Lotcap's ownership to 51 percent. One source told the publication that Wu "intends" to discuss the deal.

In its press release, Lotcap said it is now seeking approval from all of Arm China's stakeholders after signing the letter of intent. It is not clear if Lotcap needs approval from SoftBank, whose minority ownership in Arm China would not change with this transaction.

Who is this mysterious corporation

You may be wondering, just what is Lotcap? As we already suggested, it's mostly a mystery, including to Chinese news media. The people behind the group aren't known, and the South China Morning Post noted that it could not find any search results on Google or Baidu for the company's name in both English and Chinese. The company's name also doesn't exist in China's corporate registry databases.

The newspaper said it did find, via a government listing, that Lotcap has a commercial building in Macau with a "capital base" valued at $6,200.

As for how Lotcap positions itself, the firm said it is an "enterprise company" that focuses on technology investments in China's Greater Bay Area, which consists of Macau, Hong Kong, and Guangdong.

In the press release, Lotcap commended Arm China for having "an excellent management team, excellent engineers, excellent customers and an ecosystem," adding that the "future market development potential is very huge," according to an automatic translation.

Will this deal move forward and give SoftBank the confidence to return Arm to the public market via an IPO? Only time will well, we suppose. ®

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