Arm set to regain control of renegade China unit after near 2-year battle

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Arm is on the cusp of regaining control of its renegade China joint venture, in a move that would remove a significant obstacle to SoftBank’s plan to take the UK chip designer public.

Government business records on Thursday night in Beijing showed that Allen Wu, the head of Arm China, had been removed from all of his positions at the company, paving the way for a new company “chop” — through which official documents are authorised — to be made.

Taking over in Wu’s place in the crucial position of legal representative is Liu Renchen, a government adviser and vice-dean of a research institute in the city. Liu and SoftBank Vision Fund managing partner Eric Chen are set to come in as co-chief executives.

The nearly two-year-long battle began after the board of Arm China learnt that Wu had set up a personal investment fund that later invested in its Chinese clients. Despite a resounding board vote for his removal in June 2020, Wu refused to leave and instead took control of the company by way of possessing the company chop.

The board said Wu had taken the company “hostage”, in a shareholder letter seen by the Financial Times. He quickly fired several top executives he deemed loyal to headquarters, replacing the heads of finance, legal and HR with “unqualified people who are loyal to him”, the letter said.

Wu also installed his own security team at its Shanghai offices to keep out representatives from Arm and Chinese investment group Hopu.

The stand-off dragged on for months as the Chinese government manoeuvred to use the impasse to ensure the country’s access to Arm’s chip designs, which are used in nearly every smartphone.

Last month, Arm started steps to transfer its shares in the China unit to SoftBank in an attempt to work round the rogue China venture. The tactic appears to have spurred Chinese officials to action for fear of losing Arm’s direct involvement in the venture.

China is a crucial growth market for Arm and contributes a big chunk of its profits. But Arm has been unable to audit the China unit’s financials, a big hurdle for the initial public offering. Arm holds a 47.3 per cent stake in Arm China, while Hopu controls a 36 per cent shareholding.

The dispute was complicated by Wu’s control of a large block of Arm China’s shares, which he “secretly acquir[ed] control” of in 2019, according to the board’s letter.

When the joint venture was set up in 2018, another person’s name was put on the documents, who was widely known in China to be a stand-in for Wu, or a white-glove, but it appeared Arm was left unaware.

Wu used the shareholders under his control to launch three separate lawsuits against Arm China contesting the board’s decision to remove him, among other issues.

A court in Shenzhen allowed Wu to be both plaintiff and defendant in the cases, meaning he was essentially suing himself. Still, no real hearing was ever held and it was clear intervention from higher-level Communist party officials was needed to resolve the situation.

Wu has battled to remain in charge to the very last minute. In an interview with Chinese media on Thursday, he attacked Arm and SoftBank as foreign shareholders trying to stymie the development of the country’s semiconductor industry, a top priority for Beijing. He said their plans to remove him were illegal.

“SoftBank released false news that it was able to reach a deal with certain officials [for Arm China] to become a foreign-controlled entity, this is a clear violation of the law!” Wu told ijiwei.com, a Chinese chip industry media outlet with state-owned investors.

The article ended with Wu comparing his personal battle to China’s fight against Covid-19. “[It] will keep coming, maybe faster each time, but in the end, we will overcome it,” he said.

In a statement, Arm said: “Arm China is in the process of resolving its longstanding corporate governance issue, and its board of directors has voted unanimously to appoint Liu Renchen and Eric Chen as Arm China’s co-CEOs. Mr Liu has also been duly registered and accepted by local Shenzhen government authorities as the company’s legal representative and general manager.”

Arm China on Friday said the procedure of the changes to the company’s records contained “major legal flaws” and that it would use legal proceedings to “safeguard its legitimate rights and interests”.

SoftBank did not respond to requests for comment.

Additional reporting by Nian Liu in Beijing

​Letter in response to this article:

Give that word the chop / From Liang Hong, Tokyo, Japan

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