Nvidia, SoftBank call off Arm deal due to regulatory challenges
Softbank aims to launch an IPO for Arm by the end of March next year
American chip giant Nvidia and Japanese conglomerate SoftBank announced on Tuesday that they have terminated a deal for Nvidia to acquire British chip designer Arm, which SoftBank owns, 'because of significant regulatory challenges preventing the consummation of the transaction'.
The companies said in a joint statement that they have agreed not to move forward with the deal despite good faith efforts by the parties.
'In accordance with the terms of the Agreement, the deposit of $1.25 billion received by SBGC [Softbank Group Corp] at the time of signing is non-refundable and therefore such amount will be recognized as profit in the fourth quarter of the fiscal year ending March 31, 2022,' Softbank said.
The Japanese company now aims to launch an IPO for Arm by the end of March next year.
"We will take this opportunity and start preparing to take Arm public, and to make even further progress," said SoftBank's CEO Masayoshi Son. He refused to share more information about the planned IPO, which has fuelled investor speculation over which stock exchange, or exchanges, will be used for the sale.
Nvidia CEO Jensen Huang said "Arm has a bright future" and Nvidia would continue to support the firm for decades to come.
"Though we won't be one company, we will partner closely with Arm," Huang added.
Meanwhile, Arm has announced that Simon Segars will step down as the CEO to be replaced by Rene Hass, who most recently served as the president of Arm's intellectual property division.
Arm said Segars will support the leadership transition in an advisory role.
Haas told Tech Crunch that Segars' decision to step down was very much a personal choice.
"He has decided that at this stage of his career, the time and energy required to take the company public and everything around that was not something he wanted to sign up to," Haas said. "So he's going to step down. I'm going to take over for him."
Masayoshi Son described Haas as the right leader to speed up Arm's growth as the company considers re-entering the stock markets.
Nvidia agreed to buy Arm for $40 billion in cash and stock in 2020, in what would have been the largest chip firms merger in history - and the value has since inflated to $66 billion as Nvidia's shares have risen.
However, the announcement triggered a backlash from rivals, politicians and customers. Nvidia is itself an Arm licensee, prompting fears that it could give itself preferential treatment. Other licensees were concerned that it could impact Arm's position as a neutral supplier.
The world's largest tech firms, including Apple, Samsung and Qualcomm, rely on Arm's chip designs, which are used in everything from mobile phones to cars to factory equipment. Nearly every smartphone in the world, for example, uses Arm's chip designs.
The USA's Federal Trade Commission (FTC) filed a lawsuit in December to block the deal over antitrust concerns. The regulator argued that the proposed merger would give Nvidia too much control over the supply of chips and designs used by its competitors.
The deal was also under scrutiny in the UK and the EU, where regulators were concerned about the acquisition pushing up prices and limiting choice and innovation for customers.
In November, the UK government ordered an in-depth phase 2 probe into the deal over both antitrust and national security concerns.
"The Nvidia - Arm deal has faced intense scrutiny and pressure from the start, and it's no surprise that the deal has ended in failure," Geoff Blaber, chief executive of CCS Insight, said.
"Finding a way to appease regulators whilst maintaining the value and justifying the $40 billion price tag has proven overwhelmingly challenging. It has also been disruptive to Arm and its ecosystem. An IPO is a far better option for the Arm ecosystem, but is unlikely to provide Softbank a comparable return."
Computing says:
Regulators, governments and Nvidia's rivals have all spoken out against the deal, so this outcome really has been a foregone conclusion for months. Arm is not a small outfit that needs a cash injection from a bigger player, and neither is the chip market an immature one, waiting to be scaled. Realistically, the only entities this deal would have helped would have been Nvidia and SoftBank: the former for the power, and the latter (whose profits fell 98 per cent last quarter) for the money.
The proposed IPO is a sensible way to raise funds while keeping Arm independent - which, as a circuit designer, it must be. But will it raise anything close to the amount Nvidia had offered? Market watchers are not optimistic, and Segars previously warned the UK government that investment would be hampered if Arm were forced into an IPO. SoftBank could end up selling the company for a loss compared to its $32 billion purchase of Arm in 2016.
Will an Arm with lower finances, thus throttling future growth, seem an attractive investment for potential shareholders?