Fight with China CEO escalates, complicating SoftBank sale

Photographer: Kiyoshi Ota / Bloomberg

The struggle for control over The Chinese operations of Arm Ltd. escalate with new lawsuits to keep the unit’s controversial chief executive in power, which gets even more complicated. SoftBank Group Corp.’s efforts to sell the business Nvidia Corp.

The dispute broke out almost a year ago in June after the board voted to impeach Arm China Chief Executive Officer Allen Wu over conflicts of interest, but he declined to leave. Now, the Chinese unit, which remains under Wu’s control, has filed lawsuits against three senior executives appointed by the council to replace him, according to people familiar with the case. It could take years for the previously unreported lawsuits to be resolved, suggesting Wu can remain entrenched.

Wu fired the three men – including co-CEO Phil Tang – but they were subsequently reinstated by the board. In the new lawsuits, Arm China is suing the trio and demanding that they return company property, the people said.

Poor China declined to comment on pending legal matters or possible settlement talks. It did say that the three executives had caused “material damage” to the company and that they had been fired for legitimate reasons.

Tang did not respond to requests for comment. Arm Ltd. declined to elaborate, saying it will not comment on pending legal matters.

The complex battle has called into question the future of Arm, whose semiconductor technology is the world’s most widely used for smartphones and increasingly applied in computers. SoftBank founder Masayoshi Son agreed to sell the UK chip designer to Nvidia for $ 40 billion last year, but the road to completing that transaction is getting harder.

The dispute over China 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 complicates the British company’s efforts to lead Arm China and Wu, who is supported by local authorities in Shenzhen.

Both parties seem to be in a deadlock. Wu, a Chinese-born U.S. citizen, withdrew from signing settlement deals worth tens of millions of dollars if he left the company, the people said, requesting not to be identified when talking about legal matters. At the same time, two minority shareholders in Arm China associated with Wu filed lawsuits to overturn his June 4 resignation, they said.

SoftBank opened negotiations with him last year and had hoped to reach some sort of resolution, they said. Instead, the lawsuits are deepening and the Japanese company has soured the increasingly complicated dispute, the people said. SoftBank has now resigned itself to allowing legal proceedings to proceed and there are no ongoing negotiations with Wu, one of the people said.

“We are undergoing a leadership change in China; it takes time to find a solution, ”said Simon Segars, Chief Executive Officer of Arm Ltd. recently an interview with Bloomberg Television. “It’s difficult. But we are confident this will be resolved.”

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

Arm China said in a statement that Wu’s position “is in accordance with legal registration and confirmed by Chinese laws and regulations.”

Read more: Arm focuses on Intel chips in its biggest tech overhaul in a decade

The deadlock is granting a relatively unknown major executive influence over one of the most important pieces of technology in the industry, in the world’s largest Internet and semiconductor market. Chinese companies need unfettered access to Arm’s products to advance in the country’s efforts to make itself more independent in chip technology, an area where it largely relies on imports. In addition to clearing the stalemate, Nvidia and SoftBank also need Beijing’s signature to seal their deal, and it’s unclear whether Wu’s presence would complicate that.

Wu’s hold on Arm China is due in part to local laws that make it difficult to change control of a company unless you have physical control over the company’s stamp and registration documents. He has refused to give them up and has used corporate funds to pay for the legal costs he incurred in his attempt to combat his dismissal, the people said.

Arm China said legal fees are “in accordance with company policy and Chinese laws and regulations.”

According to people who have spoken to him, his ultimate goals appear to be a big cash payout and immunity from subsequent legal action. Within Arm China, which is responsible for licensing its chip designs and basic technology in the country, Wu has told local staff he is not going anywhere. He recently gave employees Chinese New Year gifts in a red envelope with his last name on it.

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

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