Arm Battle with the CEO of China increases, complicating the sale of SoftBank

Photographer: Kiyoshi Ota / Bloomberg

The battle for control of The Chinese business of Arm Ltd. increases with new demands aimed at keeping the controversial executive of the unit in power, which further complicates SoftBank Group Corp. efforts to sell the business to Nvidia Corp.

The dispute erupted almost a year ago in June after the board voted to remove Allen Wu, CEO Allen Wu, over conflicts of interest, but refused to leave. Now, the Chinese unit, which is still under Wu’s control, has filed lawsuits against three senior executives the council appointed to replace him, according to people familiar with the matter. The processes not previously reported could take years to resolve, suggesting that Wu may remain entrenched.

Wu fired the three men, including co-CEO Phil Tang, but they were later reinstated by the board. In the new lawsuits, Arm China is suing the trio, demanding that they return company properties, according to people.

Arm China declined to comment on any ongoing legal cases or possible settlement talks. He said the three executives had caused “material damage” to the company and that they had been fired for legitimate reasons.

Tang did not return comments requests. Arm Ltd. he declined to go into detail, saying he will not comment on pending legal issues.

The complex dispute has called into question the future of Arm, whose semiconductor technology is the most widely used in the world for smartphones and is increasingly being deployed on computers. SoftBank founder Masayoshi Son agreed selling the British chip designer to Nvidia for $ 40 billion last year, but the road to completing that transaction is getting harder and harder.

China’s dispute also raises questions about Beijing’s willingness to protect foreign investment in the world’s second-largest economy. Arm Ltd. sold a majority stake in the Chinese unit to a consortium of investors, including Beijing-backed institutions. This has complicated the efforts of the British firm to manage Arm China and Wu, which has the support of local authorities in Shenzhen.

Both sides seem to be at a standstill. Wu, a Chinese-born U.S. citizen, withdrew from signing tens of millions of dollars worth of settlement agreements if he left the company, people said, asking that they not identify themselves by talking about ‘legal matters. At the same time, two minority shareholders of Arm China linked to Wu have filed lawsuits to revoke his dismissal on June 4, they said.

SoftBank opened negotiations with him last year and hoped to reach some sort of resolution, they said. Instead, legal battles are deepening and the Japanese company has been exacerbated by the increasingly complicated dispute, people said. SoftBank is resigned to letting legal proceedings continue and there are no current negotiations with Wu, according to one of the people.

“We are going through a change of leadership in China; it takes time to resolve it, ”said Simon Segars, CEO of Arm Ltd. a recent interview with Bloomberg Television. “It’s difficult. But we’re sure that will be resolved.”

SoftBank and Nvidia declined to comment on the dispute in China.

Arm China said in a statement that Wu’s position “complies with the legal register and is confirmed by Chinese law and regulations.”

Read more: Arm aims for Intel chips in the biggest technical overhaul of the decade

The confrontation gives an oversized influence of the relatively unknown executive over one of the most important pieces of technology in the industry, in the largest Internet and semiconductor market in the world. Chinese companies need free access to Arm’s products to push the country’s attempts to become more independent in chip technology, an area where it is heavily dependent on imports. Beyond resolving the stalemate, Nvidia and SoftBank also need Beijing’s signature to seal their deal and it’s unclear if Wu’s presence would complicate it.

Wu’s retention in Arm China is due, in part, to local laws that make it difficult to change control of a company unless you are physically controlling the company’s stamp and registration documents. He has refused to let them go and has used the company’s funds to pay for legal expenses incurred in his attempt to fight his dismissal, people said.

Arm China said the payment of legal fees “is made in accordance with company policies as well as Chinese laws and regulations.”

According to people who have spoken to him, his ultimate goals appear to be a large cash remuneration and immunity from subsequent legal action. At Arm China, which is in charge of selling licenses for its key chip and technology designs in the country, Wu has told local staff he will not go anywhere. He recently gave employees Chinese New Year gifts in a red envelope with his last name.

Arm China said the money came from Wu personally to show his gratitude to colleagues, a Chinese New Year tradition in the country.

Hearings of the case against the three executives are expected to take place in late May, one person said. Separately, two minority shareholders in Arm China have sued the Chinese entity Shenzhen to overturn Wu’s board decision. These two cases are merging and hearings are scheduled for the end of April, according to people.