The US Federal Trade Commission on Thursday sued to block US chip company Nvidia’s more than $80 billion (roughly Rs. 5,99,760 crore) planned acquisition of British chip technology provider Arm, adding to already significant global regulatory challenges of the deal.
The proposed purchase, according to the FTC, would give one of the top chip firms influence over computing technology and designs used by competitors to manufacture competitive processors.
After meeting opposition from the chip industry, the merger was largely expected to fall apart. Last month, British authorities announced that they will open an in-depth investigation of the purchase, which is also being scrutinized by the European Union.
Arm licenses its chip design and blueprints to key chipmakers such as Apple, Qualcomm, and Samsung, ensuring that the worldwide smartphone ecosystem is supported. In 2016, Arm was sold to SoftBank of Japan.
“We will seek to demonstrate that this deal benefits the industry and promotes competition,” Nvidia stated.
Arm declined to comment
The stock-heavy agreement has more than doubled in value since it was announced in September 2020, thanks to Nvidia’s strong data center performance. If the acquisition falls through, Nvidia will only owe a $1.25 billion (approximately Rs. 9,370 crore) breakup fee, and its stock rose 2.2 percent to $321.26 (about Rs. 24,090) on Thursday.
“No one believes the acquisition will close,” said Stacy Rasgon, a Bernstein analyst. “The data center story has been hotly debated. The story’s software storyline has grown in importance. I’d want to see this agreement, but I don’t believe they require it.”
SoftBank had planned to register for an initial public offering for Arm before Nvidia’s offer. While Arm’s revenue is increasing rapidly, up 56.3 percent to $1.46 billion (approximately Rs. 10,945 crore) in the six months ended September 30, it’s uncertain whether the company’s IPO will get anything near Nvidia’s $80 billion (about Rs. 5,99,760 crore) valuation.
That would be a further setback for the Japanese company, whose Vision Fund assets fell by $10 billion (approximately Rs. 74,970 crore) last month as a result of falling values for investments in Alibaba and Didi Global, two Chinese e-commerce companies.
NVIDIA’s acquisition of Arm has hit snag after snag, and it appears that things are only going to get worse. The US Federal Trade Commission has filed a lawsuit against NVIDIA, claiming that the deal would “stifle competitive next-generation technologies.” The FTC joins a large list of stakeholders, including the European Commission and the Competition and Markets Authority of the United Kingdom.
“To avoid a chip behemoth from suffocating the innovation pipeline for next-generation technologies, the FTC is suing to halt the largest semiconductor chip merger in history,” said FTC Bureau of Competition Director Holly Vedova in a statement (via The Verge). “Preserving today’s competitive, cutting-edge chip markets is critical for tomorrow’s technologies.” This planned merger will distort Arm’s incentives in the chip industry, allowing the merged company to unjustly undercut Nvidia’s competitors.
The FTC’s complaint should send a strong message that we will move swiftly to protect our vital infrastructure markets from illegal vertical mergers that have far-reaching and harmful consequences for future innovation.”
Arm’s technology powers an ever-increasing number of gadgets, from cellphones to the MacBook Pro 16 (2021), so it’s understandable that government authorities want to make sure the transaction won’t affect the global tech industry.
Not only does NVIDIA employ Arm technologies in some of its products, but it would also profit from knowing about some of Arm’s relationships with NVIDIA’s competitors, according to the FTC. There would be a “major loss of faith in Arm” and its ecosystem as a result of this. Qualcomm, Microsoft, and Google have all expressed their displeasure with the purchase.
Furthermore, it would provide NVIDIA with both the motive and the power to prevent competitors from accessing Arm’s technology, suffocating market competition and potentially harming customers. Both NVIDIA and SoftBank, the company’s owner, are named in the lawsuit. The study is set to start in August of 2022.
Given the length of the study, it’s possible that NVIDIA’s acquisition of Arm will be rushed. In September of last year, the business stated that the transaction will be completed in 18 months. However, NVIDIA CEO Jensen Huang admitted in August that it could take a little longer than projected. The acquisition of Arm by NVIDIA is expected to be finalized by the end of 2022, according to SoftBank, the company’s present owner.