SoftBank and Nvidia Scrap $50b+ Arm Deal Over Regulatory Backlash
SoftBank Group has dropped its plan to sell Arm Ltd., a British semiconductor and software design company, to US chipmaker Nvidia after massive regulatory backlash on the deal. Nvidia announced the termination of the deal on Monday. It seems like Arm Ltd. would instead prepare for a public offering in the US.
The Biggest Semiconductor Deal Collapses
In September 2020, Nvidia struck a deal with SoftBank to acquire Arm in a transaction valued at $40 billion. In what could have been the biggest semiconductor deal in history, the combination aimed to create a “premier computing company for the age of artificial intelligence.”
However, the deal received massive backlash from regulators around the globe. In the US, the Federal Trade Commission (FTC) sued to block Nvidia’s acquisition of Arm in December, citing antitrust concerns. The FTC said in an announcement:
“The proposed vertical deal would give one of the largest chip companies control over the computing technology and designs that rival firms rely on to develop their own competing chips.”
The FTC noted that since Arm’s licensees include Nvidia’s rivals, it would share competitive information with the firm. Arm’s chip designs are used in almost all tech devices, including phones, cars, and even factory equipment. The FTC voiced concern that these companies could lose unrestrained access under Nvidia. The FTC said:
“The complaint alleges that the proposed merger would give Nvidia the ability and incentive to use its control of this technology to undermine its competitors, reducing competition and ultimately resulting in reduced product quality, reduced innovation, higher prices, and less choice.”
Following all the regulatory scrutiny, reports claiming that the deal is slated to collapse started to spread. Bloomberg cited unnamed sources saying that Nvidia was quietly preparing to abandon the acquisition. Nvidia had allegedly told partners that it doesn’t expect the deal to close in early January.
The Bloomberg report said a group of tech giants, which included Qualcomm, Microsoft, Intel, and Amazon, managed to convince regulators to stop the deal. Notably, the deal needed approval from the US, China, the UK, and the European Union.
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How the Scrapped Deal Affects Nvidia and SoftBank
According to Sanford C. Bernstein analyst Stacy Rasgon, Nvidia would probably be fine without Arm. “While owning the asset could have been wonderful, we don’t believe they had to have it either,” Rasgon said, adding the company “presumably can and will” continue its push into data-center chips.
On the other hand, the deal could have benefitted SoftBank, particularly now that valuations across its portfolio are under pressure. Moreover, since the deal was struck in 2020, Nvidia’s stock price has nearly doubled, adding billions of dollars to the initial transaction valued at $40 billion. The US company recently overtook Meta’s market cap and became the 7th largest company in the country.
SoftBank, which purchased Arm for $32 billion in 2016, would have received $12 billion in cash and about 6.7-8.1% of Nvidia stock shares, under the deal. At current rates, the stocks could be worth up to $50 billion.
It is worth noting that some inside SoftBank reportedly prefer to pursue an IPO for Arm sooner as the chip industry is currently very attractive to investors. Arm has said it would be listed before March 2023 in the US, most likely the Nasdaq.
Meanwhile, aside from this deal, authorities in the US have also questioned mergers of several large companies over the years. Most notably, in 1998, the FTC concluded that the merger between Exxon and Mobil, two giant oil companies, which was valued at $80.3 billion, would violate federal antitrust laws. Therefore, the combined company was required to divest 2,431 gas stations across the country.
Do you think Nivida’s acquisition of Arm could have really harmed its competitors? Let us know in the comments below.