— Reuters
NEW YORK: SoftBank Group Corp has halted talks about an acquisition of US data centre operator Switch Inc, a setback to founder Masayoshi Son’s ambition to roll out Stargate AI infrastructure, according to people familiar with the matter.
For months, Son pursued a deal of around US$50bil for Switch, convinced that direct control of the latter’s network of energy-efficient data centres would help the US$500bil Stargate push to generate computing power for partner OpenAI.
But earlier this month, Son conceded that a full acquisition was off the table and scrapped a planned January announcement, the people said, asking not to be named because the matter is private.
The two sides remain in active discussions about a partial investment or a partnership, they said.
Earlier this month, SoftBank inked a US$3bil deal to buy New York-listed investment firm DigitalBridge Group Inc, which holds a majority stake in Switch.
A SoftBank spokesperson did not respond to a request for comment. Representatives of Switch and DigitalBridge declined to comment.
The deal would have been one of the Japanese company’s biggest to date, and would have given a much-needed boost to the Stargate Project to build US data centres.
Son had seen that project as a key path to play a bigger role in an artificial intelligence (AI) race and had pledged to deploy US$100bil “immediately” alongside OpenAI, Oracle Corp and Abu Dhabi’s MGX.
Some within the SoftBank camp had been wary about the size of the deal as well as the logistics of running data centre campuses from Las Vegas to Atlanta, the people said.
Switch is simultaneously preparing for an initial public offering as soon as this year, and the company’s backers have considered a valuation of about US$60bil including debt via a stock-market listing.
Any deal would also likely come under scrutiny from the Committee on Foreign Investment in the United States.
While it’s unlikely that SoftBank and Switch will revive talks about a full acquisition, the two sides may find a way in the future, given Son’s keen interest in a deal.
The billionaire has said he eyed Arm Holdings Plc for years before he was able to acquire the UK chip designer in 2016.
SoftBank also owns an Ohio manufacturing facility that is operated by Taiwan’s Hon Hai Precision Industry Co, which might be a model for a partnership with Switch.
Despite being early to invest in AI technologies, Son and SoftBank have largely missed out on a global rush to build the semiconductors, server racks and other hardware to support machine learning, with the lion’s share of money flowing to a small circle of chipmakers including Nvidia Corp and Taiwan Semiconductor Manufacturing Co.
SoftBank has doubled down on its bets in AI in recent months. To finance some of that cost, SoftBank has sold down its T-Mobile US Inc shares, unloaded its entire Nvidia stake and expanded a margin loan using its Arm shares.
SoftBank’s investments in AI, along with the sharp drop in the value of Arm shares at the end of last year, are heaping pressure on its creditworthiness, S&P Global Ratings warned earlier this month.
While SoftBank has a record of discipline with managing its finances, “if it does not take prompt easing measures, such as liquidation of held assets, pressure will intensify on the credit ratings,” analysts Kei Ishikawa and Makiko Yoshimura wrote in a report. — Bloomberg
