As Arm Holdings PLC - ADR (NASDAQ: ARM) enters its third day of trading on the open markets, after staging the year's biggest initial public offering on Thursday with a valuation of $54.5 billion, investors may be wondering if the company is planning on returning capital to shareholders via dividends.
The Cambridge-based technology firm, crucial in developing CPUs for Nvidia Corp's (NASDAQ: NVDA) AI-powered GPUs, was acquired by SoftBank Group Corp (OTC: SFTBY) in 2016 for $32 billion. The Japanese firm decided to retain 90% of ARM's ownership post-IPO, releasing just a tenth of its stake to public investors.
On the dividend front, the company said that it currently has no plans to distribute dividends, according to its prospectus, and capital appreciation will be the sole source of gains on any investment in Arm Holdings.
That doesn't mean that buying shares is a bad investment - as a closer look into SoftBank's actions offers a potentially bullish narrative.
Weeks prior to the IPO, SoftBank, then holding a 75% stake, made the decision to buy the remaining 25% of ARM, elevating its ownership to 100%. That strategic move, which effectively valued Arm at $64 billion - almost double its initial acquisition price - seems to exude confidence in the company's future.
"SoftBank owned 75% of ARM just a few weeks ago. We bought back from 75% to 100% from Vision Fund, paying an even higher price. I'm more confident about the future," SoftBank founder Masayoshi Son said last week. "I see value having a significant upside. That's why I bought back at a price higher than $51."
While the market is assessing Arm's potential for equity growth, the company reiterated its position on dividends. The prospectus notes, "We intend to retain any earnings for use in our business and do not currently intend to pay dividends on our ordinary shares or ADSs."
The ability for Arm to declare and distribute any future dividends, according to its Board of Directors, will be contingent upon various factors, which include operational results, financial health, cash requirements, any prevailing contractual restrictions, or any potential future debt agreements, among others.
The company further highlighted stipulations under English and Welsh law. Specifically, the company can only distribute dividends if there are adequate distributable reserves, and even then, they must ensure that the net value of assets isn't reduced below the aggregate of their called-up share capital and other non-distributable reserves.
Considering the context, investors should be mindful that for the foreseeable future, any potential capital appreciation will be the sole source of returns from their investment in Arm.
ARM Price action: Shares of Arm Holdings were trading 6.26% lower to $56.95 at the time of publication Monday, according to data from Benzinga Pro.