The acquisition of Arm by Nvidia is in the soup! And, it was anticipated by us when we took a look at many ‘Ifs’ and ‘buts’ that came associated with the announcement of Arm acquisition by Nvidia.
Nvidia Corp. is now quietly planning to kill the acquisition of Arm Ltd. from SoftBank Group Corp., after failing to make headways in securing approval for the $40 Billion chip deal.
According to sources from Bloomberg, Nvidia has started putting out words in this regard and informed partners that the transaction may not be completed. Sensing the mood of Nvidia management, SoftBank has accelerated its efforts for an Arm IPO as an alternative to Nvidia’s takeover, another person stated on the condition of anonymity.
The Nvidia-Arm deal was set to be the largest semiconductor acquisition ever announced when it was made public in September 2020. However, since the announcement, it has met with fierce opposition from regulators and some of the largest customers of the chip industry. In December, the U.S. Federal Trade Commission filed a lawsuit to stop the transaction. It claimed that Nvidia would be too powerful if they had control of Arm’s chip designs.
At the same time, China had also expressed great concern towards the acquisition of Arm by Nvidia. Chinese authorities may block it if it gets approvals elsewhere.
But, both Arm and Nvidia are leaving no stone unturned to make this deal happen, sources have confirmed. Both Arm and Nvidia’s leadership are still making their case to regulators in a bid to get their blessings. However, no final decisions have been taken. Despite all this, both Arm and Nvidia have maintained their public commitment to the purchase.
“We remain hopeful that the transaction will be approved,” a SoftBank spokesperson said in an emailed statement.
Jensen Huang, Chief Executive Officer of Nvidia, would be thrilled if the deal is approved. And why not, after sweating day and night for years, he has transformed a graphics-card company into a chipmaking business. He is already at the top of the most valuable U.S. semiconductor company with a market cap of over half a billion dollars.
Arm Acquisition: An Uphill Battle for Nvidia
For many analysts, right from day one of the deal, Nvidia management was aware that getting regulatory approval for Arm acquisition will be a tough nut to crack. So far it has proven to be a difficult fight and the status quo is unlikely to change. Qualcomm Inc. pulled out from its $44 billion acquisition of NXP Semiconductors NV, in 2018, after almost two years of tug of war with regulators.
So, what are the reasons behind such cranky behavior of regulators? The answer lies in the massive success of Arm!
Because Arm’s chip designs are used in everything, from phones and cars to factory equipment, the sale of Arm has been under intense scrutiny. This makes neutrality the cornerstone of Arm’s business model. Arm technology is used by the world’s largest tech companies – including Apple – and they are concerned about losing unfettered access to Nvidia, which is already the world’s second-largest chipmaker, trailing closely behind TSMS.
The takeover was opposed by tech giants as well. According to people familiar, Qualcomm, Microsoft Corp., Amazon.com, Inc., Google, and Intel Corp. came together to halt the deal. The Arm purchase must be approved in the U.S. as well as China. In addition, the deal must also be cleared by both the European Union (and the United Kingdom) which are closely studying the matter.
The situation has divided Nvidia into two groups. One set of people are disappointed by the defeat of the acquisition, others believe management could use FTC trials to prove the merits.
As a result of the new development that has come to light, Nvidia shares dropped as much as 5.6%, to $220.70 on New York Stock Exchange on Tuesday. SoftBank’s U.S. deposit shares also fell 4.9%.