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SoftBank’s Arm sale hits a snag as UK opposition party warns of risks

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The U.K.’s opposition Labour party said this week that an Arm takeover is not in the public interest and criticized the ruling Conservative Party for failing to protect the British chip designer — often hailed as one of the nation’s most innovative firms — from overseas predators.

Arm’s chips are used by companies around the globe to power millions of electrical devices. Apple uses them in iPhones and iPads, while Amazon uses them in Kindles, and car manufacturers use them in vehicles. The company has 6,000 staff globally and 3,000 of those are in the U.K.

Ed Miliband, the shadow business secretary, warned that an Arm takeover by a Silicon Valley firm would ultimately lead to U.K. jobs moving overseas.

A government spokesperson said that Downing Street monitors proposed acquisitions closely. “Where we feel a takeover may represent a threat to the UK, the government will not hesitate to investigate the matter further, which could lead to conditions on the deal,” they said. 

Rumors have been swirling that U.S. chipmaker Nvidia is edging closer to buying Arm from current owner, SoftBank, which has allowed Arm to carry on independently since it acquired the firm in 2016 for £24 billion ($31 billion). SoftBank CEO Masayoshi Son confirmed in August that his company is considering selling or listing Arm.

Arm declined to comment and Nvidia did not immediately respond to CNBC’s request for comment. 

“Arm is a major British success story, but the government is doing nothing in the face of the risk of the company being swallowed up by Nvidia,” Miliband said in a statement shared with CNBC.

“If the government truly believes in an active industrial policy, it cannot be right that they are ignoring the potential consequences of this takeover – including the possible implications for where the company is headquartered and the thousands of jobs in Britain that depend on it.”

Miliband also warned about the risks of putting too much power in one company’s hands.

“We also know the tendency of dominance is a particular problem in the tech sector, and government must be much more vigilant about the risks of this,” he said. “The government should show leadership and seek legally binding assurances from Nvidia should it take over the company to keep Arm headquartered in the UK rather than see jobs and decision-making moved across the ocean — the same assurances that were made when Arm was taken over by Softbank in 2016.”

Miliband’s warning comes after several other British tech companies were acquired by larger companies overseas. One of the most notable examples in recent years is London artificial intelligence lab DeepMind, which was acquired by Google in 2016 for around $600 million. Today, DeepMind is widely regarded as one of world leaders in AI research.

The Labour party said there is a “worrying pattern of key British businesses in the vital technology sector being taken over by overseas interests.”

Enterprise Act

Dominic Cummings, the chief advisor to U.K. Prime Minister Boris Johnson, emailed civil servants this week to confirm he is looking at ways to build $1 trillion U.K. tech firms, according to Business Insider.

Referring to DeepMind, Cummings wrote on his blog last March that the U.K. had a “valuable asset and let Google buy it for trivial money without the powers-that-be in Whitehall understanding its significance.” 

Elsewhere, U.K. network intelligence firm Imagination Technologies was taken over by China-owned investment firm Canyon Bridge in a £550 million deal in 2017. Nvidia itself bought the Bristol-headquartered Icera for $367 million in 2011 and subsequently sacked more than 300 staff in the U.K. in 2015.

Last month, The Evening Standard newspaper reported the deal between Nvidia and Arm was on course to be completed by the end of summer and that sources were valuing Arm at up to £40 billion.

The Labour party said the government should act when acquisitions can result in national assets being “stripped for parts” or shipped overseas. It said the government could do this by expanding the Enterprise Act to include a public interest test where a deal could implicate the U.K.’s industrial strategy.

Last month, Arm co-founder Hermann Hauser said an Arm sale to Nvidia would be a “disaster,” pointing out that Arm’s business model means it can currently sell to everybody.

“The one saving grace about Softbank was that it wasn’t a chip company, and retained Arm’s neutrality,” he told the BBC. “If it becomes part of Nvidia, most of the licensees are competitors of Nvidia, and will of course then look for an alternative to Arm.”

The Labour party said that if Arm is acquired by Nvidia, it would then be subject to the Committee on Foreign Investment in the United States regulations. That means President Donald Trump could choose which companies Arm can sell to outside the U.S.

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Elon Musk explains how self-driving robotaxis justify Tesla valuation

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Elon Musk, founder of SpaceX and chief executive officer of Tesla Inc., arrives at the Axel Springer Award ceremony in Berlin, Germany, on Tuesday, Dec. 1, 2020.

Johannessen-Koppitz | Bloomberg | Getty Images

Don’t count Elon Musk among the investors who think Tesla is overvalued, even with the stock up almost 700% in the past year and the company valued at 213 times projected 2021 earnings, according to FactSet.

In the car maker’s fourth-quarter earnings call on Wednesday, Tesla’s CEO said there is a “roadmap to potentially justify” its market cap, which has topped $800 billion, making it the fifth-most valuable U.S. company. Musk is now the world’s wealthiest person, with a net worth over $200 billion.

Musk’s valuation math goes like this: Assume the company soon reaches $50 billion to $60 billion in annual car sales (the company generated $9.31 billion in automotive revenue in Q4 and said that vehicle deliveries would increase an average of 50% a year going forward). As Tesla’s self-driving technology continues to improve, those vehicles will become self-driving robotaxis, allowing usage to go from 12 hours a week to 60 hours a week. Tesla could charge additional fees for those robotaxis, allowing the company to generate much more revenue per car. Basically, it would be like bringing software economics to the manufacturing-intensive car business.

Musk also announced that Tesla’s Full Self Driving package will be available on a subscription basis starting in Q1, rather than as a one-time $10,000 add-on, which will allow Tesla to begin adding recurring revenue as it works on improving its self-driving technology.

Even if usage only doubles, a $1 trillion valuation can make sense, according to Musk.

“If you made $50 billion worth of cars, it would be like having $50 billion of incremental profit, basically because it’s just software,” Musk said in the introductory part of the call. Based on that formula, Musk says a multiple of 20 times earnings would lead to $1 trillion in market cap — “and the company’s still in high-growth mode.”

Less than nine months ago, Musk had a very different perspective on the company’s valuation. In a tweet on May 1, he said “Tesla stock price is too high,” a comment that sent the shares down 10%. Since then, the company’s market cap has jumped by more than 450%.

It’s possible that investors are already presuming Tesla’s cars will eventually turn into revenue-generating robotaxis. But the company isn’t close to having those capabilities yet, and Musk has a history of over-promising when it comes to technological innovation.

For instance, when Tesla began to discuss self-driving technology in 2016, Musk said the company would complete a hands-free trip across the U.S. by late 2017. The company has yet to complete that mission.

Currently, Tesla’s Full Self Driving features include Smart Summon, which lets a driver call their Tesla to roll out from a parking spot to where they are standing, and Navigate on Autopilot, which can pilot the car from a highway on-ramp to an off-ramp, making necessary lane changes along the way.

But despite its name, the Full Self Driving package still requires drivers to keep their hands on the steering wheel and remain attentive at all times. A Munich court ruled last year that Tesla misled consumers on the abilities of its automated driving systems, and banned the company from including “full potential for autonomous driving” and “Autopilot inclusive” in its advertising materials.

While Tesla has missed many of its own projections for self-driving technology, Musk continues to insist that it’s coming. “I really do not see any obstacles here,” he told an analyst on the call who asked about the company’s progress.

Tesla shares fell 5.5% in extended trading on Wednesday after the company reported earnings that missed analysts’ estimates, even as revenue was better than expected.

WATCH: Tesla misses on earnings

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Reddit group WallStreetBets behind massive GameStop, AMC run-ups goes private, invitation required

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Rafael Henrique | SOPA Images | LightRocket via Getty Images

“Wallstreetbets” Reddit chat room, where retail investors marshal against short sellers, went private on Wednesday evening, limiting access to outsiders.

“You must be invited to visit this community,” the page now states. The forum’s members topped three million as of Wednesday. The community gathered an army of rookie day traders who go after heavily shorted stocks, pushing share prices higher and squeezing out short-selling hedge funds.

GameStop, a popular target in “wallstreetbets,” saw its shares soaring more than 400% this week alone. The brick-and-mortar video game retailer has skyrocketed a whopping 1,700% as retail traders continued to encourage each other to pile on.

AMC Entertainment, another hot topic in the chat room, surged more than 300% Wednesday alone, experiencing its highest volume ever.

A Reddit spokesperson said “wallstreetbets” moderators set the community to private.

“Reddit’s site-wide policies prohibit posting illegal content or soliciting or facilitating illegal transaction,” the spokesperson said. “We will review and cooperate with valid law enforcement investigations or actions as needed.”

Social platform Discord banned the “wallstreetbets” chat room on Wednesday.

“The WallStreetBets server has been on our Trust & Safety team’s radar for some time due to occasional content that violates our Community Guidelines, including hate speech, glorifying violence, and spreading misinformation,” a Discord spokesperson said in a statement.

“Over the past few months, we have issued multiple warnings to the server admin.Today, we decided to remove the server and its owner from Discord for continuing to allow hateful and discriminatory content after repeated warnings,” the spokesperson added.

This is breaking news. Please check back for updates.

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Wall Street Firms Take GameStop Losses, Admit Defeat To Redditors

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Two of the major hedge funds targeted by investors on Reddit pushing up the stock price of GameStop have waved expensive flags of defeat and sold out of their investments, losing millions of dollars.

On Wednesday, the stock price of GameStop (GME), the mall retailer for video games, soared 134%, a staggering increase of 748% in just one week after Reddit investors launched a chaotic short squeeze attack to increase the price and screw over major investors.

Wall Street hedge funds, including Citron Research and Melvin Capital, had shorted the stock, meaning they bet against it and needed it to drop in price in order for their investments to be successful.

The meeting place for the internet investors, popular subreddit r/WallStreetBets (WSB), gained an extra million members in just one day as its GameStop push gained widespread media attention and the memes followed.

Andrew Left of Citron Research, who had called the redditors an “angry mob” last week after they attempted to hack his Twitter account and harassed his family after he said GME will drop to $20, released a video statement Wednesday. He confirmed Citron Research had closed its short position on GME, which basically means that it sold out of its investment, choosing to cut its losses before the price rose any further.

“I cannot answer one more phone call,” Left says in the video. “How are you? Are you OK? Are you in business? What about GameStop? Should I short it here? People I have not spoken to in 20–30 years — this has captured the attention of America.”

“I’m just fine. Citron Capital is just fine,” he says. “Covered the majority of the short in the 90s, at a loss, 100%, I had a small manageable position and I let it go.”

That means Left sold the majority of his investment when the stock was selling in the $90 range. It closed on Wednesday at $330.

Left also says in the video that as a longtime activist investor, he respects WSB and redditors taking on hedge funds, and acknowledges that the market is changing.

“Even though we have been called boomers many times over the past week, we understand the changing dynamics in the market, and with that, we’ll become more judicious when it comes to shorting stocks,” Left says. “It doesn’t mean the industry is dead, it just means you have to be more specific.”

Melvin Capital announced that it had sold out of GME on Wednesday morning. The Melvin Capital news was announced on CNBC by Andrew Ross Sorkin, who said he’d spoken with the manager of the fund, Gabe Plotkin.

“They got out of the stock yesterday afternoon. They have taken a rather huge loss,” said Sorkin, who added that he did not know the total of the loss.

On Monday, Melvin received more than $2 billion in emergency cash to help stabilize the fund and allow it to close the shorted position, the Wall Street Journal reported.

Yet some of the WSB redditors didn’t believe that Melvin had closed its position and encouraged investors to not sell GME.

After the flurry of activity on Wednesday, TD Ameritrade, one of the free brokerage apps commonly used by young investors, briefly restricted trades on some stocks, including GameStop and AMC (another target of the WSB crowd) “in the interest of mitigating risk for our company and clients.” That frustrated many who saw the halt as Wall Street firms stopping investors from making trades that would improve their personal wealth.

Adena Friedman, the CEO of Nasdaq, said her exchange would possibly temporarily halt trading so investors could “recalibrate” if one of the stocks was being targeted online in a similar manner to what’s happened with GameStop.

“If we see a significant rise in the chatter on social media channels,” Friedman told CBNBC, as reported by Mediate, “we also match that up against unusual trading activity, [and] potentially halt that stock to allow ourselves to investigate the situation, to be able to engage with the company, and to give investors a chance to recalibrate their positions.”

Sen. Elizabeth Warren, who has long fought to hold Wall Street accountable, called out the big financial players for freaking out when everyday investors used the same techniques against hedge funds that the firms used to build their own wealth.

“For years, the same hedge funds, private equity firms, and wealthy investors dismayed by the GameStop trades have treated the stock market like their own personal casino, while everyone else pays the price,” she said.


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