It is one thing for a regulator to thoroughly examine your agreement. It is quite another to suggest publicly that your assurances about why the deal should be done have materialized too late to be credible.
In this case, Nvidia has obtained from both the British Competition Authority and the markets its proposed acquisition of chip designer Arm from the Japanese company SoftBank.
The UK government on Tuesday ordered a full investigation into competition and national security concerns raised by the US Cambridge-based Arm’s takeover, a process that could take several months.
The transaction, which was announced in September 2020, is mired in regulatory reviews around the world. It is expected to miss its original closing schedule by March 2022 and could easily extend into next year.
And after a summary conclusion “serious competition problems” this summer, the CMA Phase 1 Full Report does not facilitate reading, on the part of a regulator increasingly concerned with being robust in the examination of the large world sectors.
The government’s referral will not surprise Nvidia. Arm’s âneutralâ business model has always made it a difficult acquisition, especially for the world’s largest semiconductor maker.
Arm licenses its designs to other chipmakers, providing the ability to restrict competitors’ access to its technology or direct investment to the benefit of an interested owner. Nvidia is committed to maintaining Arm’s open licensing model and hopes to secure a fuller hearing for its case as part of the longer Phase 2 investigation.
Competition regulators generally do not like the kind of behavioral commitments, or remedies, that would be needed to address these concerns.
They are difficult to define, control or enforce, and in this case the AMC noted that the five-year commitments are not contributing to what is a persistent problem. This could be made more difficult, said a former regulator, by understandable concerns raised by other companies and pointed out in the CMA report about disclosing sensitive information to a rival.
The regulator was also exceptionally direct in questioning Nvidia’s commitments. Certainly, it is standard practice for the regulator to look with skepticism at documents produced or statements made once a legion of advisers become involved in announcing a deal. But the CMA noted that while internal documents supported Nvidia’s desire to expand into data center technology through the deal, the neutrality pledges came later, particularly “in anticipation probably of a regulatory review of the merger “.
This skepticism is matched only by its response to the suggestion that Arm, which was acquired by SoftBank in 2016, will struggle to compete in the rapidly evolving world of chip design for data centers, a problem that Nvidia’s investments and expertise in artificial intelligence can address.
Nvidia’s decision to pay $ 40 billion in cash and stock for Arm, which is now worth much more thanks to the US company’s soaring share price, was at odds with the presented grim assessment of the strengths and growth prospects for its target, said the CMA. SoftBank’s reports on Arm’s data center outlook also painted a rosier picture.
These competition concerns are just one hurdle, for a deal that seems increasingly difficult to strike but keeps a company in a rapidly changing market in limbo.
Arm was a topic of political discussion in 2016, when its sale to SoftBank was (like everything else) declared a victory for post-Brexit Britain. This agreement will ensure that it will remain so.
It’s a rare tech success in the UK, with headquarters and most of the staff here – and Nvidia is likely to come under pressure to increase its commitments to jobs and investments. Its previous sale in the London market had been canceled with embarrassing ease. There is now a much more muscular political view of national security issues in the UK with a particular focus on technology – an approach that is making itself felt even before new takeover rules come into effect at the start. next year.
Even a year into the process, the fight to buy Arm seems to be getting harder and harder.