UK considers blocking Nvidia's takeover deal for Arm over national security

The government is likely to take the final decision following a deeper review of the deal

The UK government is considering blocking acquisition of British chip designer Arm by American graphics hardware giant Nvidia over potential national security risks, Bloomberg reported on Tuesday citing people with knowledge of the matter.

According to the report, the preliminary investigation of the deal conducted by the UK's Competition and Markets Authority (CMA) has found worrying implications for the UK's national security.

The CMA submitted the completed Phase 1 investigation report to the government on 20 July, and now the government is inclined to block the deal, a source told Bloomberg.

Another person said that the government could order a deeper review of the deal, and the final decision will be taken after the review.

The government could also approve the deal, but with certain conditions, the sources added.

In a statement to Bloomberg, Nvidia said that it would "continue to work through the regulatory process with the UK government".

"We look forward to their questions and expect to resolve any issues they may have."

British chip designer Arm is currently owned by Japan's SoftBank, and its chip designs are widely used by various smartphone makers - including Apple and Samsung - as well as in laptops, data centres, and IoT devices.

In September 2020, Nvidia announced that it had entered into a definite agreement with SoftBank Group to acquire the British chip and IP design firm Arm in a $40 billion transaction.

The American firm said that Arm would operate as a separate division after completion of the deal and that it would provide more support for its R&D efforts as well as access to Nvidia's entire suite of products.

Because Nvidia is a licensee of Arm chips, the deal triggered concerns among other licensees, who were worried about its potential impact on Arm's position as a neutral supplier.

Tech firms like Google, Microsoft, Amazon and Graphcore are thought to have written to the CMA asking for the deal to be blocked.

Some of Nvidia's competitors are ready to invest in Arm, if Nvidia isn't allowed to acquire it. Broadcom, Marvell and MediaTek have said that they support the takeover deal.

Earlier this year, the CMA said that it was inviting views from other companies and organisations on the impact of the deal on competition in the UK.

In April, the UK digital secretary Oliver Dowden issued an intervention notice instructing the CMA to review any potential security implications, as well as jurisdictional and competition issues posed by the deal.

"At the end of a phase-two investigation, the digital secretary has the power to take action to remedy, mitigate or prevent any effects adverse to the public interest," the government said in its press release.

The UK government is also currently reviewing the takeover deal for Newport Wafer Fab Ltd., after the company agreed to be sold to Chinese-owned Nexperia for around £63 million ($87 million).

After Nexperia announced the deal in early July, Tom Tugendhat, Conservative MP for Tonbridge and Malling and chair of the Foreign Affairs Select Committee, said he was "surprised" to see that the government had not ordered a review of the NWF acquisition under the National Security and Investment Act (NSIA).

Kwasi Kwarteng, the Business Secretary, said the deal was carefully considered from a national security perspective and that it was not believed to raise any issues. However, Prime Minister Boris Johnson later said that he had referred the matter to Sir Stephen Lovegrove, the national security adviser.

"We are looking into it," the prime minister told Westminster's Liaison Committee, adding that the government needs to judge whether the items being manufactured at NWF are "of real intellectual property value and interest to China" and whether there are any security implications for the UK.