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ARM acquisition sees Acorn dismembered

Pace takes set-tops, managers take DSPs

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ARM is organising a share buyback, through the imaginative device of acquiring its former parent company Acorn. After the agreed acquisition, Acorn effectively no longer exists. The company is selling off one operating business -- the set-top box business to Pace Micro Technology and its second operating business -- the DSP design business to managers. (Do they still want to call this business Element 14 ?). In January, Acorn sold its half share in Xemplar, the education dealership, to fellow shareholder Apple for £3 million. Presumably there is still some cash in the Acorn business and this will stay with the management. But who will retain rights -- and the royalty cheques -- for the Acorn RISC OS? Acorn currently holds a 15 per cent stake in RISC OS Ltd, a company set up by die-hard Acorn dealers, developers and enthusiasts, to peddle Risc OS4, the long awaited upgrade for the Acorn platform. Costing £120, Risc OS is available for advance orders from this week. Tidying up ARM’s acquisition represent a neat tidying up exercise, for which advisers Close Brothers deserve a fat fee. Acorn currently holds 24.2 per cent of ARM, but financial constraints mean that a: it could never be anything more than a very passive shareholder and b: a predator could tunnel into ARM through Acorn. ARM is offering two ARM shares for every five Acorn shares, valuing Acorn at £269.8 million or 279p. This is a 14 per cent premium over Acorn’s closing price yesterday and a premium of 35.7 per cent to the average discount of "15.8 per cent. at which Acorn Ordinary Shares have traded to the post-tax value per share of Acorn's investment in ARM Holdings over the six months prior to the date of this announcement". So the patience of long-suffering Acorn shareholders, and arrivistes who were looking for a cheap way into ARM, a relatively illiquid stock, will get their reward by directly owning ARM shares. Acorn downturn Almost incidentally, Acorn announced its results today. The headline figure of £11.1 million pre-tax profit for the year to 31 December,1998 (1997: £2.9 million) is altogether less impressive, when the company’s one-off profits of £18.1 million on the sale of ARM shares are taken into account. Acorn’s withdrawal from its own Acorn platform hardware business is reflected in sales that tumbled in half to £11.5 million for the year. The operating loss tripled to a spectacular £9.9 million. ® ARM revenues show huge boost Wise men save Acorn PC

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