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Nvidia at risk of $1.25bn loss if Arm takeover falls through


For the first time, Nvidia has warned that it may lose a $1.25 billion (£950 million) down payment on the British microprocessor designer Arm if authorities continue to stymie the acquisition. If regulators compel the parties to terminate the acquisition, the break fee on the deal will not be refunded, according to the US graphics chip maker.
In September of last year, Nvidia agreed to buy Arm, a Cambridge-based firm that makes processors used in billions of smartphones, from Japanese investor SoftBank for $40 billion. However, regulators have put the acquisition on hold because they are concerned that it will offer Nvidia a significant competitive advantage. Arm currently operates on an open business strategy, which means that its designs are freely available to chipmakers. Customers are concerned that if the acquisition goes through, the independent business will significantly favor Nvidia’s manufacturing activities, limiting access to other companies. Nvidia had wanted to finalize the agreement in early 2022, with the potential to extend negotiations until September.
However, the takeover is being investigated in depth by the Competition and Markets Authority (CMA) in the United Kingdom, as well as another in the European Union, which is not expected to report until March. The corporation is also in talks with US authorities about possible solutions to the deal’s issues and expects a formal investigation in China that could last months. In a filing with US authorities, Nvidia stated that these investigations were “likely to extend beyond September 2022, which may result in the termination of the acquisition agreement” unless its concessions to regulators were approved soon. It further stated that if the acquisition falls through owing to a lack of regulatory approval, the $1.25 billion upfront payment to Arm might be forfeited.
“We shall not be repaid $1.25 billion of the upfront consideration if the transaction does not close owing to failure to receive regulatory approval, and all other covenants have been met,” Nvidia added.
Nvidia had previously stated in official records that is anticipated to receive the down payment returned if the deal fell through, and that it expected the deal to finishing by the deadline next year. The UK’s competition watchdog was directed by Culture Secretary Nadine Dorries earlier this month to extend its investigation into the takeover to a “phase 2” inquiry and report on its implications on national security.
The arm is regarded as a critical component in the global tech supply chain, as it creates the blueprints for high-performance smartphone and laptop silicon circuits.
Customers like Microsoft and Nvidia competitors like Qualcomm have worried that the transaction will consolidate power in the hands of a single business. Nvidia has defended the acquisition, claiming that it will invest in Arm’s UK operations while maintaining its business model. “Although regulators and some Arm licensees have raised reservations or protested to the transaction, we continue to believe in the merits and benefits of the purchase to Arm, its licensees, and the industry,” the tech giant said in its most recent quarterly results.
The arm was a publicly-traded company on the London Stock Exchange before being acquired by SoftBank in a £24 billion deal in 2016.
Because a tranche of Nvidia shares SoftBank would receive if the deal closes has appreciated since it was disclosed last year, the value of the future sale has been raised for SoftBank. If the takeover is blocked outright, SoftBank is considered to be receptive to floating Arm. In the United Kingdom, the Competition and Markets Authority (CMA) has 24 weeks to probe the agreement further, pushing the deadline to the beginning of May. This can be extended for another eight weeks.