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Nvidia’s Acquisition of Arm Holdings Hitting Heightened Regulatory Scrutiny

The largest acquisition in the semiconductor industry's history faces stiff headwinds.

Video source: YouTube, Bloomberg Technology

Nvidia Corp’s (Nasdaq: NVDA ) bid to acquire Arm Holdings is taking longer than expected as the transaction which seeks to unite the two of the most powerful chip companies in the world has been met with heightened regulatory scrutiny.

During the company's earnings call late Wednesday, in which Nvidia reported reported sales and profit, chief executive officer Jensen Huang said discussions with regulators in the US, UK and China “are taking longer than initially thought,” and the deal may therefore not close within the originally anticipated window.

The $40 billion transaction announced in September 2020 between Nvidia and Arm’s current owner, Softbank, gives the Nvidia until September 2022 to clear the purchase with regulators.

If the deal isn't completed by then, Softbank gets to keep as a breakup fee the $1.25 billion that Nvidia already paid.

The acquisition would give Nvidia access to chip designs used by the world’s biggest technology players, including makers of smartphones, cars and factory equipment.

Arm, which is based in the UK, designs chips for mobile phones and does business with companies including Apple, Broadcom, Qualcomm and Samsung Electronics.

In the UK, regulators are concerned over potential national security risks and are “currently inclined to reject the takeover.” Politicians have also decried the takeover as a blow to Britain’s tech industry. 

Bloomberg News noted that it remains unclear how Arm changing from Japanese to American ownership would affect UK national security, but there have been broader concerns about the company’s ability to stay neutral if it’s acquired by Nvidia.

The US Federal Trade Commission (FTC) launched an investigation into the deal after Google, Microsoft and Qualcomm complained it would limit competition.

The deal is also expected to face stiff opposition from regulators in China, where control of the global chip industry is regarded as a geopolitical battleground with the US. 

Nvidia would not be the first US company to have a big global tech deal shot down by Chinese regulators. In 2018, Qualcomm’s $44 billion bid to buy the Netherlands-based NXP Semiconductors fell apart after it failed to secure approval in time.

In a statement Wednesday, Nvidia said, “We are working through the regulatory process for our pending acquisition of Arm Ltd. Although some Arm licensees have expressed concerns or objected to the transaction, and discussions with regulators are taking longer than initially thought, we are confident in the deal and that regulators should recognize the benefits of the acquisition to Arm, its licensees, and the industry.” 

For the quarter ending Aug. 1, Nvidia reported record sales of $6.51 billion, topping analysts' estimates of $6.33 billion. Adjusted earnings came in at $1.04 a share vs. estimates of $1.01.


Source: Equities News