Nvidia Agrees To Buy ARM From SoftBank: $40 Billion Deal With Many Ifs And Buts

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Masayoshi Son has been looking to sell off Arm for quite some time and finally, it seems like he has managed to find the perfect buyer for it albeit with some complications.

In what is being called the largest-ever deal in the entire semiconductor industry, the California-based American multinational technology firm Nvidia has agreed to buy the semiconductor and software design company Arm Ltd from SoftBank Group for a whopping $40 billion. 

Jensen Huang led Nvidia is ready to pay $21.5 billion in stock and then cover $12 billion in cash which would include a payment of $2 billion at signing for Arm Holdings.

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In a statement, on Sunday, the companies said that SoftBank may be eligible to receive an additional $5 billion in cash or stock if Arm’s performance happens to meet certain targets and that $1.5 billion will be used to pay employees of Arm in stock as well.

When the news of the deal made its way to various media reports, the shares of SoftBank witnessed a surge by as much as 10% which ended up further rekindled discussions of the company going private.

For Nvidia, acquiring Arm is more valuable in terms of strategy than in revenue.

Arm Holdings’ technology currently powers more than 1 billion smartphones that get sold annually. From chips in factory equipment to chips in home electronics, everything uses Arm’s code and its layouts.

CEO Jensen Huang of Nvidia has revealed that this acquisition will greatly benefit them in driving A.I. aka artificial intelligence to everything that has an ‘on-switch’. But that being said, the fruition of the deal isn’t going to be easy.

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Let’s understand why.

Problems With The Arm Acquisition Deal

In order for the deal to materialise, both SoftBank and Nvidia will require sign-offs from China, U.K., European Union and U.S. authorities. This is expected to take as long as 18 months given the recent change in China’s acquisition law along with the rising backlash the country has been facing from the United States.

After the announcement of the deal, Huang said that his team is willing to fully devote their time with the regulatory bodies of China and thus he’s confident it will get approval with minimal roadblocks.

The other concerning element in this deal is the fact that this acquisition will definitely end up the relationship Arm has forged with customers such as Apple Inc and Intel Corp. 

One of the biggest reasons this chip designer has been able to work with such high profile companies or partners is because it didn’t try to compete with them. However, now that’s all going to change when this deal comes to fruition. 

To this, Huang has stated that he will do his best to maintain the neutrality Arm has worked so hard building up and will make sure their client list expands over time.

According to him, Nvidia has no incentive or intention whatsoever to take any such steps which would lead to Arm’s clients to walk away. But, that being said, this acquisition will definitely be a challenge to the neutrality of AM as Nvidia is a licensee as well.

Four years ago when SoftBank purchased Arm for $32 billion, it was largely uncontested as the Japanese conglomerate was not a competitor to any of Arm’s customers. With Nvidia, however, that’s not the case at all.

One client of Arm that definitely stands to be challenged after Nvidia acquires it is undoubtedly Intel Corp – one of the prominent competitors of NVidia.

Nvidia’s primary objective behind acquiring Arm is to speed up the adoption of Arm-based central processors aka CPUs. This is a segment which has long been dominated by Intel with over 90% share and thus it will be interesting to see how the situation plays out after the deal closes. 

All in all, now that SoftBank is finally selling of Arm, Masayoshi Son can now further enable some more liquidity in his company and then get back to focusing on the investment side of things. We will keep you updated on all future developments. Until then, stay tuned.

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