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

Nvidia

Nvidia has warned for the first time that it is at risk of losing a $1.25bn (£950m) downpayment for the British microchip designer Arm if regulators persist in holding up the deal.

The US graphics chip company confirmed to investors that the break fee on the deal will not be refunded if regulators force the parties to abandon the acquisition.

Nvidia agreed to buy Arm, a Cambridge headquartered company that designs processors used in billions of smartphones, from the Japanese investor SoftBank for $40bn in September last year.

However, regulators have delayed the takeover due to fears the deal will give Nvidia a major advantage over competitors.

At present Arm has an open business model in which its designs are widely available to chipmakers. But customers fear that the independent company will heavily favour Nvidia's own manufacturing work if the deal goes ahead, with other players' access limited.

Nvidia had originally hoped to close the deal in early 2022, with the option to extend talks until September.

But the takeover is facing an in-depth investigation by the UK’s Competition and Markets Authority (CMA) and another in the European Union that is not due to report until March.

The company is also in discussions with US authorities over possible remedies to concerns around the deal, and is expecting a formal inquiry in China which could last months.

In a filing with US regulators, Nvidia admitted that unless its concessions to regulators were accepted soon, these investigations were “likely to extend beyond September 2022, which may result in the termination of the purchase agreement”.

It also said that its $1.25bn upfront payment to Arm could be forfeit if the deal fell through due to a failure to gain regulatory approval.

Nvidia said: “If the transaction does not close due to failure to receive regulatory approval, and all other covenants have been met, we will not be refunded $1.25bn of the advanced consideration”.

In previous official filings, Nvidia had stressed the likelihood that it would get the down payment back if the deal fell through and said the deal was expected to close before the deadline next year.

Earlier this month, Nadine Dorries, the Culture Secretary, ordered the UK’s competition watchdog to escalate its investigation into the takeover to a “phase 2” inquiry, and report on its impact on national security.

Arm is seen as a vital link in the global tech supply chain, developing the blueprints used for making highly efficient smartphone and laptop silicon chips.

Nvidia rivals including Qualcomm and customers such as Microsoft have warned the deal would concentrate power in the hands of a single company. Nvidia has defended the takeover, saying it would invest in Arm’s UK operation and keep its independent business model.

In its most recent quarterly results, the tech company said: “Although regulators and some Arm licensees have expressed concerns or objected to the transaction, we continue to believe in the merits and benefits of the acquisition to Arm, its licensees, and the industry.”

Arm was listed on the London Stock Exchange before being snapped up by SoftBank in a £24bn takeover in 2016.

The value of the potential sale has been boosted for SoftBank because a tranche of Nvidia shares it would receive if the deal completes have surged in value since it was announced last year. However, SoftBank is thought to be open to floating Arm if the takeover is blocked outright.

In the UK, the CMA has 24 weeks to further investigate the deal, taking its deadline to the start of May. It can extend this by a further eight weeks.