SoftBank’s $66bn sale of chip group Arm to Nvidia collapses

SoftBank’s $66bn sale of UK-based chip business Arm to Nvidia collapsed on Monday after regulators in the US, UK and EU raised serious concerns about its effects on competition in the global semiconductor industry, according to three people with direct knowledge of the transaction.

The deal, which would have been the largest-ever in the chip sector, would have given California-based Nvidia control of a company that makes technology at the heart of most of the world’s mobile devices. A handful of Big Tech companies that rely on Arm’s chip designs, including Qualcomm and Microsoft, had objected to the purchase.

SoftBank will receive a break-up fee of up to $1.25bn and is seeking to unload Arm through an initial public offering before the end of the year, said one of the people.

The deal’s failure is set to result in a management upheaval at Arm, with chief executive Simon Segars to be replaced by Rene Haas, head of the company’s intellectual property unit, the person added.

The collapse of the transaction robbed SoftBank of a windfall from a boom in Nvidia’s stock price. The cash-and-stock transaction was worth up to about $40bn when it was announced in September 2020 but grew as Nvidia’s shares took off.

In the UK, where politicians view Arm as a strategic national asset, attention is set to shift to whether the company will be listed in London. A British competition review into the deal was extended last year to include national security considerations.

However, people close to SoftBank said it would rather list Arm in New York and would resist nationalistic pressure. US markets accord higher valuations to tech stocks, even after a recent sell-off. UK tech executives recently pressed for changes to listing arrangements to make London more attractive.

Kirk Boodry, a tech analyst at Redex Holdings in Tokyo, said the “big question” was “whether SoftBank can surface the value it had hoped to receive from Nvidia” through the IPO, but he said that was unlikely.

Boodry added that the main issue was the impact the IPO had on any SoftBank share buybacks, “as the Arm sale looked to be the primary source of new funds”.

SoftBank’s shares were broadly unchanged at ¥5,351, ahead of the Japanese tech group’s third-quarter earnings announcement on Tuesday afternoon.

Alibaba’s share price was hit by speculation about potential SoftBank stake sales, with its Hong Kong-listed shares falling 3.5 per cent on Tuesday morning after a 6 per cent drop in the US on Monday. Alibaba is SoftBank’s most valuable asset.

Nvidia abandoned its pursuit of Arm at a board meeting on Monday, said a person familiar with the discussion. Its pursuit of Arm marked an opportunistic attempt to score an end-run around chip rivals such as Intel and AMD and was prompted by an approach from SoftBank after it decided to shed the business.

Jensen Huang, Nvidia’s chief executive, hoped to use Arm’s processor designs to cement his company’s growing role in data centres, where its graphical processors have become important tools for machine learning.

However, some Big Tech companies that rely on Arm’s designs for their own chips argued that Nvidia would get an unfair advantage by having first rights to Arm’s technology.

Nvidia offered to compete watchdogs that it would maintain sales to Arm’s other customers after the deal was completed. But the UK regulators said they did not believe that would be effective and the US Federal Trade Commission launched an investigation last year.

Additional reporting by Antoni Slodkowski in Tokyo

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