The proposed Japanese takeover by Graphcore of the British artificial-intelligence company is being reviewed for national security reasons amid concerns that foreign investors are targeting UK technology.
SoftBank, a Tokyo-based conglomerate of technology companies that holds a majority stake at Arm , has been questioned after it struck a deal to acquire Graphcore.
The government review is believed to be the last hurdle before the merger is announced.
The deal will be valued at more than $500m, but less than $2.8bn in 2020.
Multiple sources confirmed that the Investment Security Unit (ISU) of the Business Department was scrutinizing the takeover.
ISU monitors investment in companies that deal in cutting-edge technologies.
The ISU was established in 2022 as part of the national security laws. It reviews hundreds of transactions each year. The majority of transactions are cleared without restriction.
Cabinet Office may in certain circumstances apply conditions for takeovers.
In recent years, the importance of semiconductors and artificial intelligence technologies (AI) to critical infrastructure and defence has increased national security scrutiny.
One City lawyer stated: “It’d be shocking if Government didn’t look into this given the nature Graphcore’s businesses and the sensitivity of the UK regarding acquisitions in this sector for UK companies.”
SoftBank and Graphcore are yet to confirm their takeover discussions.
It is also believed that employees of the company were kept in the dark regarding developments.
Senior investors have been informed about the deal, it is believed.
Graphcore has struggled to gain traction in the face of Nvidia dominating the market.
Nvidia graphics processors are essential for AI software development, including OpenAI’s ChatGPT.
The demand for its chips sent the US firm’s valuation to more than 3 trillion dollars, briefly becoming the most valuable company in the world.
Graphcore, despite raising over $700m in funding from investors in the technology sector, said that new funds were needed to continue operating.
The company’s revenue fell 46pc in 2022 to $2.7m as it battles export controls in China.
SoftBank talks are said to have recently reached a breakthrough, after months of stumbling.
Graphcore has recently updated its shares structure, allowing it to return more money to shareholders.
In recent months, several shareholders have increased the value of their shares.
Chrysalis Investments (a London-listed investment management firm) flagged a “likely disposition” in December, and valued its Graphcore holding at more than double the original value.
Chrysalis’ interim results, released on Friday said that it hoped the deal with the unnamed firm “will be concluded in the near future”.
Recent public fund valuations have placed Graphcore’s worth between $450m to $1bn.
Documents from the company state that a sale at this price would result in some shareholders losing money on their investment.
Graphcore’s structure allows investors who took part in a $222m round of funding in 2020 to get their money back, but early backers could receive only a small fraction of any sale.
Masayoshi Son – SoftBank’s mysterious chief executive – has pledged to invest billions in AI firms – raising $1.8bn for this purpose.
The company led a recent funding round of $1bn for British driverless vehicle company Wayve.
SoftBank’s founder, who launched the Vision Fund with a $100bn fund, told investors recently: “I believe I was born to achieve ASI [artificial Super Intelligence].
Graphcore SoftBank both declined to comment.
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