Nvidia Corp. is quietly preparing to abandon the purchase of Arm Ltd. by SoftBank Group Corp. after making little or no progress in winning approval for the $ 40 billion chip deal, according to people familiar with the matter.
Nvidia told partners it did not expect the deal to close, according to a man who asked not to be identified because the discussions were private. Meanwhile, SoftBank is stepping up preparations for Arm’s initial public offering as an alternative to Nvidia’s takeover, another said.
The purchase – which is set to become the largest semiconductor deal in history when it was announced in September 2020 – has provoked a fierce reaction from regulators and the chip industry, including Arm’s own customers. The US Federal Trade Commission filed a lawsuit to suspend the transaction in December, arguing that Nvidia would become too powerful if it gained control of Arm’s chip design.
The acquisition also faces resistance in China, where authorities tend to block the takeover if it wins approval elsewhere, according to one person. But they don’t expect it to go that far.
Both Nvidia and Arm’s management are still pleading their case with regulators, according to the people, and no final decisions have been made. And through all this, the companies have publicly maintained their commitment to the purchase.
“We continue to support the views expressed in detail in our recent regulatory documents – that this transaction provides an opportunity to accelerate Arm and increase competition and innovation,” said Nvidia spokesman Bob Sherbin.
“We continue to hope that the transaction will be approved,” a SoftBank spokesman said in an e-mail statement.
Shares of Nvidia fell 5.6 percent in New York on Tuesday. US depository shares of SoftBank fell 4.8%.
If Nvidia manages to transfer the deal, it would be a huge coup for CEO Jenson Huang, who built a graphics card business in a chip-making empire. He already heads the most valuable American company in the semiconductor industry with a market capitalization of more than half a trillion dollars.
But it will be a difficult battle. Qualcomm Inc. gave up the $ 44 billion takeover of NXP Semiconductors NV in 2018 after nearly two years of regulatory hurdles.
Arm’s sales are tightly controlled, as its chips are used in everything from phones to cars to factory equipment, which makes neutrality the basis of its business model. The world’s largest technology companies rely on Arm technology and fear they could lose unlimited access under Nvidia.
Technology giants have lined up against the takeover. According to people familiar with the process, a group that includes Qualcomm, Microsoft Corp., Intel Corp. and Amazon.com Inc., has provided regulators around the world with what they believe is enough ammunition to end the deal. In addition to the approval of the United States and China, the purchase of Arm requires permission from the European Union and the United Kingdom, both of which are closely examining the deal.
The test created divisions in Nvidia. Some people in the company have come to terms with the defeat of the acquisition, but others believe that management can use the FTC’s experience to demonstrate the merits of the deal.
Within SoftBank, there are factions that want to allow the process to grow – especially since Nvidia’s share price gain has made the transaction more valuable. Even after a recent decline, Nvidia shares have nearly doubled since the announcement of the Arm deal. This adds tens of billions of dollars to the original price of 40 billion dollars.
Others at SoftBank would prefer to hold an IPO for Arm earlier, while the chip industry is still considered attractive to investors. Concerns about delays are already growing.
The original agreement between Nvidia and SoftBank expires on September 13 – two years after it was forged – but will be automatically renewed if the approvals take longer. Nvidia said at the outset that it would take “approximately 18 months” to complete the transaction. This schedule will suggest completion around March this year – something that is already unlikely.
The FTC case itself can take months. Both the European Commission and the UK’s antitrust supervisor will have to weigh.
SoftBank and Arm have the right to retain $ 2 billion from Nvidia, paid on signing, including a $ 1.25 billion dissolution fee, whether or not the deal is completed.
Nvidia must also receive approval from the Chinese authorities at a time when trade tensions are rising. The United States is seeking to prevent China’s semiconductor industry from gaining access to the latest technology. Many of the country’s young chipmakers are customers of Arm, giving Beijing an extra incentive not to allow the technology to become US property.
Disputing the deal, companies such as Qualcomm, Intel and Google said Nvidia could not maintain Arm’s independence because it was itself a customer of Arm. Nvidia, the largest maker of graphics chips, is competing with Intel in server processors and expanding into new areas that would put it in direct competition with many other Arm licensees.
Nvidia also supplies chips to businesses such as Amazon’s AWS and Microsoft’s Azure, providing technology that handles artificial intelligence processing in data centers. These companies are also developing their own chips, making Nvidia both a supplier and a potential competitor.
(Updated with shares.)
– With the help of Dina Bass, David McLaughlin, Ruth David and Dinesh Nair.