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Canadian company increases cash payout for IAA shareholders to $12.80 per share, from $10

Canada’s Ritchie Bros. RBA 0.82% Auctioneers Inc. agreed to amend the terms of its proposed acquisition of U.S. auto retailer IAA Inc., IAA 1.78% as activist investor Starboard Value LP plans to make a $500 million investment in Ritchie Bros.

Under the terms of the amended agreement, IAA stockholders would receive $12.80 in cash, up from $10, and 0.5252 Ritchie Bros. share for each IAA share. That implies a combined value to IAA stockholders of $44.40 based on Ritchie Bros.’ closing price of $60.17 on Friday. (Previously, the stock component was 0.5804.)

As part of the agreement with Starboard, Ritchie Bros., a heavy-equipment and truck auctioneer, agreed to add the investment firm’s chief executive officer, Jeffrey Smith, to its board, executives at the firms said.

The investment and Mr. Smith’s appointment are contingent on Ritchie Bros. receiving investor approval for the IAA deal, which has received pushback from shareholders on both sides.

Ritchie Bros. Chief Executive Officer Ann Fandozzi said in an interview Sunday that the amended merger agreement along with Mr. Smith’s involvement should be seen as a “better answer” for both sets of shareholders based on all of the feedback she has received.

In November, Ritchie Bros. said it had agreed to acquire IAA, a marketplace for car parts and damaged vehicles, in a cash-and-stock deal valued at about $7.3 billion including debt. The announcement was met by a record selloff in Ritchie Bros. shares.

Luxor Capital Group LP, which holds about 3.6% of Ritchie Bros. shares, said recently that it filed a preliminary proxy statement with the Securities and Exchange Commission in connection with its opposition to the proposed deal. Among its concerns, Luxor said the transaction would require Ritchie Bros. to shift its attention away from core initiatives.

Meanwhile, Ancora Holdings Group, which owns about 4% of IAA, said in a letter to the company’s board that although it believed Ritchie Bros. was a logical buyer, the firm held concerns including about the purchase price. Ancora built a position in IAA in 2021 and called on the board to either fire CEO John Kett or sell the company.

Starboard’s Mr. Smith said Sunday that he was surprised that the market initially soured on the deal. He said, however, that provided a chance for him to get involved and sweeten the pot for everyone involved. “There are a lot of reasons why these two companies should be together, and we’re very excited about the plan to improve revenue growth and the opportunity to have margin expansion,” Mr. Smith said.

He also noted that Starboard was an investor in IAA’s parent company, KAR Auction Services Inc., prior to its spinout.

According to Ms. Fandozzi, Ritchie Bros. is aiming to create a successful marketplace with more offerings, building on Ritchie Bros. success in the auction business. She said that combining the companies and their real-estate portfolios should yield revenue growth and opportunities for cost savings.

Ritchie Bros. expects roughly $350 million to $900 million in incremental adjusted earnings before interest, taxes, depreciation and amortization annually from combining with IAA, which it hasn’t previously disclosed. The company continues to expect $100 million to $120 million in annual cost synergies, according to Ms. Fandozzi.

Additionally, Ritchie Bros.’ board plans to approve a special dividend payout to its shareholders of $1.08 per share, contingent on the close of the IAA transaction. This wasn’t part of the previous deal structure.

Starboard’s investment in Ritchie Bros. would take the form of $485 million in convertible-preferred equity, with an initial conversion price of $73 a share, and $15 million in common stock for roughly $59.72 per share.

Ritchie Bros. shares closed Friday at $60.17, bringing the company’s market value to $6.7 billion. IAA stock ended at $40.65, giving the company a market capitalization of $5.4 billion.

British chip-design company puts pressure on Intel while preparing for IPO

A new generation of chips using Arm Ltd. technology is heaping pressure on Intel Corp. INTC 2.81% as the British chip-design specialist prepares for what could be one of the year’s highest-profile public listings.

Arm-based chips have been winning market share in PCs and have become a more formidable rival in the increasingly important data-center market where Intel has long been the undisputed leader. Amazon. AMZN 3.81% com Inc. has embraced the technology for its self-made server chips, and Microsoft Corp. MSFT 3.57% and Google are working on processors using building blocks licensed from Arm, according to people familiar with their efforts.

The Cambridge, England-based company demonstrated some of its popularity this past week when Apple Inc. AAPL 1.92% expanded its bet on Arm-based chips. On Tuesday, Apple, an early adopter of Arm, introduced two new versions of its in-house-designed Arm chips for MacBooks, leaving Intel—long Apple’s preferred supplier for core processors—only furnishing those for its highest-end desktop computers.

Intel, which reports quarterly results Thursday, is expected to post a 23% decline in revenue in its PC-focused business, according to analysts surveyed by FactSet. Intel’s server business sales are forecast to retreat 40% from the year-prior, reflecting a weakening economy and loss of market share to its rival Advanced Micro Devices Inc. and to Arm-based chips.

The inroads Arm-based chips have made recently with cloud-computing operators have become particularly meaningful because the data centers operated by Amazon, Microsoft, Google and others consume a vast number of chips. Arm earns royalty payments on every chip made or sold using its design.

“It’s a massive opportunity for us,” Arm Chief Executive Rene Haas said.

Arm, which is owned by Japan’s SoftBank Group Corp. , is gearing up for an initial public offering this year. The company’s IPO plans have shifted to later in the year because of market turmoil that has depressed appetite for new listings, an Arm official said last year. Arm also is still deciding where to list its shares, with political pressure in the U.K. to pick London.

Arm made its name devising the basic building blocks of circuits at the heart of smartphones, aiming to minimize power consumption to extend battery life. Arm-based chips are the digital brains in more than 95% of smartphones, including all Apple iPhones.

Because Arm makes money largely by licensing chip building blocks rather than making the devices, it generates relatively modest sales figures given its reach. It generated $2.7 billion in revenue in 2021—up by more than a third from the prior year, but still only about 3% the size of Intel.

It has transplanted its smartphone success into other markets. Processors using its chip format now feature in more than 10% of all PCs sold as of the third quarter of last year, according to Mercury Research. While global shipments in laptops are expected to decline this year by a high single-digit percentage, those for Arm-based laptops could grow, according to Counterpoint Research.

The share of processors shipped to cloud-computing companies that aren’t based on Intel’s chip architecture—largely reflecting Arm’s use—reached 16% last year and is predicted to rise to 53% in 2026, according to Canalys, a research firm. Estimates of Arm-based chips’ market share vary widely, however, because in-house applications like those developed by Amazon aren’t easy to track. Arm chips are now also found in virtual-reality headsets and autonomous vehicles.

Intel is fighting back. This month, it released a long-delayed new generation of its server chips promising high performance and power-saving capabilities. “We know what we need to do in order to be the preferred supplier for these products, and we’ve been working hard to put that foundation back together and ensure that we do win,” said Lisa Spelman, an Intel vice president in charge of its server processor products.

Arm-based server chips are benefiting from a focus at cloud companies on environmental stewardship. The three biggest American cloud providers are pledging to cut their carbon footprints by 2030 or earlier.

Each data center can house hundreds of thousands of servers and require as much power to run a day as about 30,000 residential households. Having server farms that consume less power is critical to meeting those targets, officials from the cloud providers have said.

“Power is going to be a problem for us and for everybody,” said Amazon’s Dave Brown, a vice president at Amazon who handles the company’s cloud-computing server farms and represents one of the single largest chip customers. Amazon’s latest Graviton chips—based on Arm and released late last year—are up to 60% more efficient than its other CPUs, he said. Those consist of Intel and AMD chips.

Intel wouldn’t respond directly to Amazon’s performance claims, but CEO Pat Gelsinger suggested last year that a generation of its server chips set to debut in 2024 would outclass Arm alternatives on key efficiency and performance metrics.

Arm’s success made it the target of multiple high-value deals. SoftBank in 2016 splashed out $32 billion, which, Arm executives have said, freed them to boost research spending by 10% to 15% and sharpen the company’s attack on rivals without the pressure of having to post its own quarterly financial results.

“SoftBank came along and gave us the freedom to go and invest all of our profits back into R&D,” former CEO Simon Segars said, helping it develop circuit designs catered directly to servers.

Then Nvidia Corp. , America’s largest chip company by value, tried to acquire Arm from SoftBank in 2020 for $40 billion. Many customers objected that Arm, which has a reputation as the Switzerland of tech, would be owned by a rival and pressured regulators to block the transaction. Nvidia and SoftBank called off the deal a year ago.

Also trying to ride the Arm wave is Ampere Computing LLC, a startup that has raised more than $850 million from investors and has filed to go public. The server-chip company is designing its own Arm-compatible chips from scratch and counts Microsoft and Hewlett Packard Enterprise Co. among its clients. Its chips offer new choices in a server market long dominated by Intel and AMD.

“We’re talking about upsetting a 30-year order,” said Ampere CEO Renee James, a former Intel president who left in 2016 after being passed over for the top job there.

Meanwhile, Arm’s customers are opening new fronts to win PC business. Mobile-phone chip giant Qualcomm Inc. is working on Arm-based chips for Windows laptops. Those devices could land with customers this year and help drive the growth in Arm-based laptop shipments, Counterpoint Research said.

Lisa Su, chief executive of Intel rival AMD, said last year that her company was in the early phases of working on Arm-based chips that could potentially go into videogaming consoles.

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Prudential Regulation Authority’s stress test of 16 insurers finds their assumptions ‘too optimistic’

Life insurers could be overly optimistic about their ability to sell down assets in a crisis, the Bank of England has warned.

The BoE’s Prudential Regulation Authority, which supervises the sector, put 16 life insurers through a stress test of credit downgrades and increased longevity. In results published on Monday, it found them resilient, but it said their assumptions for how quickly they could sell down assets following a crisis “could be optimistic”. 

Several relied on their ability to sell bonds that had been downgraded to junk, with £8bn to £9bn of such assets expected to be offloaded. Most assumed this could be done within six to 12 months of the event.

“In light of the aggregate finding, this could be optimistic, especially as other investors would also be taking similar actions,” the PRA said. “It is important that, when firms plan for the management actions that they could take in stress, they allow for market liquidity and potential stress amplification arising from actions taken by other investors.”

An example of such a rush for the exit was provided in last year’s gilts market crisis, when pension funds struggled to offload government debt quickly enough to meet collateral calls and the BoE was forced to intervene.

For general insurers, the regulator identified areas for improvement in how they quantify losses such as so-called secondary perils — events such as floods that have historically been less costly, but are growing in frequency.

For cyber risks, it found that insurers’ assessment of the likelihood of tail risks were “highly variable” and that there were “challenges and sensitivities” in the use of exclusions for state-sponsored attacks. Such exclusions have sparked fierce debate in the sector and a flurry of legal cases.