Leading British technology company is restructuring their balance sheet. This fuels speculation about a possible deal with SoftBank – one of the largest investors in this sector.
Graphcore, a Bristol-based semiconductor company, has announced in its most recent financial statements that it intends to cancel the share premium account worth $723m. The business would have more flexibility to give cash back to shareholders as dividends or share buybacks. This is often the case when companies adjust the capital structure of their shares before an event such as a merger.
Shareholders or creditors who oppose the move have been invited to attend a court hearing on Tuesday, May 29. SoftBank has been reportedly in talks to buy Graphcore for the past year.
Nigel Toon and Simon Knowles founded Graphcore in 2016, a company that develops computer processing focusing on artificial intelligence. In its latest accounts, the company stated that additional investment was needed to continue as a “going business” and it expected to raise more funds by the third-quarter of 2023.
SoftBank, led by Masayoshi son, the Japanese billionaire aged 66, has made no secret of its intention to increase its investments in AI and bring on board companies that share synergies.
Arm is the star of its portfolio. The semiconductor designer, which was floated last year in New York, shares many similarities with Graphcore. Investors may also be interested in the chance to knock Nvidia from its high perch. The American company is by far the leader on the highly sought-after AI processors market.
Nigel Toon and Simon Knowles founded Graphcore together in 2016.
Graphcore has raised £562 Million in its first 6 years, from investors such as Samsung, Dell Sequoia Capital, Schroders, and Sequoia Capital. A December 2020 investment round gave it a £2.1 billion valuation. It has suffered in the aftermath of the fall in technology valuations following the pandemic. Sequoia – the American specialist investor in technology – wrote down its stake to zero.
Graphcore filed its latest financial results with Companies House. The company’s pre-tax losses in 2022 rose from $184.5 to $205 millions, and revenues dropped from $5 million to $2.7 million. After a round redundancies it had 494 employees at the end 2022.
The amount that shareholders receive for shares above nominal value is recorded in a share premium account. The reserve is only available to pay for expenses of the company or invest in growth. It cannot be distributed as dividends.
Mark Roe, public company advisor at Eversheds Sutherland law firm, explained that the reduction or cancellation of a company’s premium account was usually done to generate distributable profits. If you want to create distributable profits for a corporate act, such as paying a dividend or distributing assets to shareholders, but the company does not have enough distributable reserve, then this is a way to get it.
SoftBank was asked for a comment. Graphcore declined comment.
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