Invest in my personal fund and get a discount on Arm’s cutting edge chip technology: that was the offer allegedly made by China boss Allen Wu to some of his customers.
That conflict of interest is one of several accusations that have been levelled at Mr Wu, the chief executive of Arm China, as he battles SoftBank and the powerful Chinese private equity firm Hopu for control of the valuable unit.
After several months of quiet negotiations, the tensions burst into public view earlier this month, after Arm, the UK chip designer that SoftBank bought for £24.3bn in 2016, announced it had ousted Mr Wu, alleging “serious irregularities” and “conflicts of interest”.
But Mr Wu has refused to budge. He remains the company’s legal representative and is in possession of the company seal, giving him control under a centuries-old Chinese system. SoftBank and Hopu face a long legal quagmire to prise him out, having failed to persuade him to leave peacefully.
“He (Mr Wu) knows he will eventually be removed. But this is his weapon to get a separation agreement,” said one lawyer with close links to Arm China.
But others close to Hopu and SoftBank suggested the time for negotiation has passed. “The opportunity is absolutely gone. He chose not to settle when he could have,” one of the people said.
Arm China is critical not just to SoftBank, which said in 2018 that it was responsible for a fifth of Arm’s overall sales, but also to several Chinese technology companies, including Huawei’s HiSilicon division. SoftBank has claimed that Arm China’s intellectual property powers 95 per cent of the computer chips designed in China.
At the head of such a business, Mr Wu began to build an empire, according to his critics, and would present himself as China’s answer to Masayoshi Son, the mercurial SoftBank founder.
“He seemed more interested in investments than in running the business,” said one person close to Arm. “Allen Wu got greedy.”
At the heart of the dispute lies Alphatecture, a fund set up by Mr Wu in July last year to invest in promising tech start-ups in China. From the beginning, the lines between Alphatecture and Arm China were blurred.
In one example, public documents show Alphatecture put money into a company called Bestechnic only a few weeks after the Chinese chip designer received funding from Arm Accelerator, an incubator programme run by Arm China.
In another, a Shenzhen-based storage device maker Yeestor Microelectronics announced in April that it had raised funding from “Alphatecture, a dollar ecological fund under the internationally renowned chip IP company.” The investment actually came from Alpha Yoda Limited, another Hong Kong company that Mr Wu is a director of.
According to several people familiar with the situation, Mr Wu formally asked the Arm China board for approval to create Alphatecture in November, but the proposal was not passed. The board later found out that the fund had already been incorporated.
Following complaints from whistleblowers and others who were approached by Mr Wu, Arm headquarters eventually discovered claims that Mr Wu had offered discounts to Arm China customers in exchange for their investment in Alphatecture, two people with direct knowledge said. No client appears to have accepted such a deal.
Advisers close to SoftBank said they had repeatedly warned the Japanese group about Mr Wu and his investment activities, raising questions of oversight at a time when the group has promised shareholders tighter governance.
But one board member supportive of Mr Wu said that the dispute “could have been solved” and “makes no sense from a business point of view”.
He said Arm China, and Mr Wu, had been trying to build a series of companies that would support Arm’s business. “We had discussed in the board the need to develop the ecosystem for Arm in China. Allen had taken the initiative and they overplayed the whole thing. At the board everybody knew what he was doing.”
Mr Wu, 52, a US citizen who joined Arm in 2004 and worked his way up to lead its China business, said he would not “comment on speculation” and referred all questions to Arm China.
His spokesman said: “As a company policy, we safeguard commercial confidentiality and don’t comment on any speculations. Regarding ecosystem investment and the specified fund, Arm China has performed its duty of disclosure.”
Removing Mr Wu will not be easy. SoftBank and Hopu have already asked regulators in Shenzhen for a new company seal, presenting letters of support signed by Arm and Mr Son.
But going to court to retrieve the seal and business licence is likely to be a multiyear process. Arm is depending on the deep political connections of Hopu’s founder, Fang Fenglei, to find a resolution.
If Mr Wu leaves, several other Arm China executives, particularly on the sales side, are likely to follow. The investigations into the situation are still ongoing and there are questions over the complex connections between Mr Wu, other board directors, Arm China and Alphatecture.
According to public documents, a series of other funds established by Mr Wu own a stake in Arm China via a consortium that holds a 13.3 per cent stake in the business. Mr Wu also holds a stake in Arm Accelerator alongside Arm China through an investment partnership set up in Shenzhen.
The stakes are held by a Shanghai firm that Mr Wu owned in his own name until March when he transferred it for “0 dollars” to a Hong Kong-based company he controls, Acorn Spring Limited.
Two directors on the board of Arm China, which is owned 49 per cent by the UK group, have also invested in Mr Wu’s Alphatecture, according to two people with knowledge of the findings.
In July of last year, when Mr Wu set up Alphatecture, his fund received an Rmb21m ($3m) investment from Beijing-based mobile software developer Thundersoft, according to its recent filings. Thundersoft founder and chairman Zhao Hongfei is also an Arm China director.
Reporting by Henny Sender in Hong Kong, Kana Inagaki in Tokyo, Ryan McMorrow and Nian Liu in Beijing and Nic Fildes in London
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