Predatory investors make a grab for Imagination Technologies’ IP

Beware of Chinese bearing gifts

Jon Peddie

Imagination Technologies has had a rocky ride since 2015. The company was the primary GPU supplier to Apple, Intel, and several other companies, and actively investing in diverse industries (like DAB), MIPS, and adjacent industries. Imagination was heading for a billion in revenue. But Intel pulled back, dropped Imagination, and sold off its share in the company it had purchased to prevent a hostile takeover. In late 2016, Apple poached several GPU engineers from Imagination and rumors began to circulate about Apple dropping Imagination as a supplier. Imagination started working with Apple before the iPhone was introduced in June 2007. Apple was Imagination’s fourth-largest shareholder with a stake of just over 8%.

Then in February 2016 Imagination’s long-standing CEO, Hossain Yassaie, announced he would resign and the company struggled to make a profit over the years, partially due to Yassaie’s aggressive investment in R&D.

Following that shock to the system, in April 2017, after several successful releases of iPhones, Apple announced it was ending its business relationship with Imagination Technologies and stopping the use of its graphics technology in its new products. That sent Imagination’s share price down 70% since at the time Apple accounted for half of the company’s revenue.

The company appointed an interim CEO and in September 2017 announced China-backed private equity firmCanyon Bridge Capital Partners would acquire Imagination Technologies for £550 million ($675 million). That was 42% more than Imagination’s closing share price at the time. It was an eyebrow-raising deal given that U.S. President Trump and the U.S. Committee on Foreign Investment in the United States (CFIUS) had blocked Canyon Bridge from buying U.S.-based Lattice Semiconductor. (In the wake of that decision, Canyon Bridge relocated its head office from the U.S. to the incurious Cayman Islands.) However, the Imagination deal was dependent on the company selling off its holdings in MIPS, which it did to Tallwood Venture Capital for $65 million (the company paid $60 million for MIPS in 2012).

Since late 2017, Imagination with stable and unobtrusive investors, and the appointment in early 2019 of semiconductor industry veteran Dr. Ron Black as CEO, Imagination Technologies had a bright future. The shining example of the company’s new stability was realized in mid-2019 with the introduction of a new range of GPUs and culminated by Imagination announcing Apple would once again be a licensee for Imagination’s products.

And politics arrived.

Over the weekend, the Chinese investors tried to gain control of Imagination Technologies. Canyon Bridge’s main investor is China Reform Holdings, a $30 billion Chinese government-controlled venture fund, which is one of thousands of Chinese state-owned enterprises. Canyon Bridge has links to Beijing's State Council, the country’s top decision-making body.

China Reform indicated to the company that it wanted to redomicile it to China—a move that would have inevitable consequences for hundreds of British technology jobs.

An emergency board meeting was due to be held on, Tuesday, 7th April to push through the appointment of four board members with links to China Reform Holdings. However, the meeting was canceled after Oliver Dowden, the culture secretary, wrote to Imagination Technologies this week demanding a meeting with its chairman Ray Bingham to gather more information on the developments. As a result, the attempt to seize control of the board failed after intervention by the UK government.

The minister’s intervention followed a campaign, led by Conservative politician David Davis, warning that Imagination Technologies, which employs 650 people in Britain and 900 in total around the world, could be moved to China if the boardroom coup succeeded.

One source said that China Reform’s move appeared to be timed to coincide with “the point of maximum distraction” for ministers, with governments around the world almost entirely consumed by the task of dealing with COVID-19.

However, on Tuesday, Imagination’s emergency board meeting was called off, following a furious backlash in Westminster against the proposed boardroom coup by China Reform Holdings according to England’s culture secretary Oliver Dowden. Mr. Dowden said his officials were “working with their counterparts in the departments for Business, Energy, and Industrial Strategy, the National Cyber Security Centre, the Foreign Office, and Cabinet Office as a matter of urgency to understand the facts.”

The decision to abandon the emergency meeting and leave Imagination's board unchanged is, said by sources close to the company, to have removed the immediate prospect of Ron Black, its chief executive, resigning to protest the Chinese takeover.

And that's where matters stood…

Until we heard on Friday that Ron Black has been fired and Ray Bingham, founding partner and co-founder of Canyon Capital is now the CEO. For now at least, the deal also included a promise to the UK government to protect Imagination's jobs in the UK.  

There is a lot at stake. Imagination was the tenth most prolific UK-based filer of patents in the European Union last year—ahead of Dyson and the chip designer ARM Holdings, which is owned by Japan's SoftBank. As a result of its patent holdings, the company is a treasure house of IP and has its tentacles in every GPU company on the planet. The Chinese phone companies must be drooling over Imagination’s patent portfolio. China already has acquired all the MIPS IP, and has a chunk of the ARM IP as well. 

From our vantage point, it seems as if England has self-Brixited its high-tech industry by letting Imagination Technologies and ARM slip through its fingers.