Berenberg downgrades ARM as it lifts price target to reflect Softcat deal

“This is our bull-case scenario price target and thus we move the rating from buy to hold,” the bank said.

Berenberg said it reckons the proposed acquisition of ARM by Softbank announced last week will go through, and that any counterbid was unlikely to be successful because any bid for ARM from customers such as Apple, Samsung, Qualcomm and China, or from cloud computing players such as Facebook, Google and Amazon, would come up against regulatory hurdles.

“If a customer wanted to buy ARM, it would need to gain approval from the regulators in a number of different regions, and its competitors would likely oppose such a deal,” the bank said.

Based on its conversations with investors, Berenberg said they were happy with the price and that a counterbid is not waiting around the corner.

“Prior to the deal announcement, we believe that sentiment was quite negative on ARM on the back of a slowdown in smartphone volume growth – and ARM was yet to see significant demand for its chips from the server and networking market.”

Berenberg said the price offered gives ARM credit for continuous smartphone cycle, server and networking market share gains.

At 1050 BST, ARM shares were down 0.4% to 1,677p.