US regulator sues to halt Nvidia’s acquisition of Arm

US regulators have sued to block Nvidia’s multibillion-dollar acquisition of UK chip design company Arm from SoftBank, one of the most serious threats yet to a deal that has already run into scepticism from EU and UK authorities.

The Federal Trade Commission (FTC) said in a statement on Thursday that the cash and stock transaction – which has a valuation of $82 billion (€72 billion) and would be the largest takeover of a semiconductor group – would give one of the world’s biggest chip groups control over computing technology and designs that competitors rely on to create their own chips.

Concerns

The issues echo those flagged by UK regulators when they first expressed concerns about the deal in the summer.

Nvidia will have both "the means and incentive to stifle innovative next-generation technologies", the FTC alleged, pointing to concerns about automated driving systems, networking chips found in data centres and the large-scale facilities of cloud computing companies.

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Holly Vedova, director of the FTC’s bureau of competition, said the regulator was acting in order “to prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies”.

The regulator pegged the value of the chip deal at $40 billion, though Nvidia’s soaring share price in the 14 months since it was announced has more than doubled the amount SoftBank would realise from the sale. Nvidia would have to pay the Japanese company a $1.25 billion break-up fee if the deal falls apart.

Nvidia said in a statement it would “continue to work to demonstrate that this transaction will benefit the industry and promote competition”, adding it would invest in Arm’s research and development, maintain its open licensing model and ensure its intellectual property was “available to all interested licensees”.

Arm’s designs for low-power chips already dominate the smartphone world and the technology is being adopted more widely, particularly in data centres, which are the focus of Nvidia’s latest growth push.

The prospect of Arm's intellectual property falling into Nvidia's hands has drawn objections from some rivals, including Qualcomm. However, other chip companies such as Broadcom that do not compete directly have been more supportive of the deal.

Nvidia disclosed last month that the FTC had “expressed concerns” about the Arm transaction and that it was in discussions with the agency about “remedies to address those concerns”.

Compromise

The UK’s Competition and Markets Authority (CMA) in August rejected a proposed compromise from Nvidia, designed to head off antitrust concerns. The proposal involved a guarantee that Nvidia would not block other companies from licensing Arm’s technology or limit the number of products they would have access to, according to one person familiar with its position.

The CMA and the European Commission have begun in-depth investigations into the deal, pushing the potential completion of any merger beyond March, when Nvidia and SoftBank initially said they expected the transaction would be finalised.

Over the past decade, almost $700 billion worth of deals has been agreed in the chipmaking sector, about $250 billion of which was ultimately blocked, according to Refinitiv data.

The Nvidia-Arm deal is also the latest significant antitrust move by the Biden administration, which has committed to curb the power of big business by stamping out anti-competitive practices.

Among the deals that were challenged by US authorities were a tie-up between publishers Penguin Random House and Simon & Schuster and a $30 billion deal between Aon and Willis Towers Watson that would have formed the world's biggest insurance broker. – Copyright The Financial Times Limited 2021