News broke this week that what would have been the biggest chip deal in history was now officially dead in the water. Cause of death? A sustained and ultimately lethal attack by regulators, with simmering East-West relations cited as a contributing factor.
Japanese multinational SoftBank had planned to sell UK-based Arm to Nvidia, a US chipmaker, for (initially) $40bn. The plan was first announced in September 2020 and was expected to take about 18 months to conclude (which would have taken us to March 2022). According to Reuters, with the sale pegged to Nvidia’s stock price, it may have gone through for almost $80bn late in 2021. Alas, it was not to be at any price. Almost immediately the proposed arrangement set off alarm bells for various competition regulation bodies, and for good reason.
Calling Cambridge home, Arm has long been the prize pony of the country’s tech stable. It licenses chip designs or “processor IP” to semiconductor makers. These partners, as it calls them, have collectively produced 200-billion chips based on those designs in the past 30 years. According to CNBC, chips based on their designs can be found in 95% of the world’s smartphones, not to mention innumerable other tech. Its customers include Qualcomm, Samsung and Apple.
Arm was acquired by Softbank in 2016 for $32bn and four years later it was looking to offload it, but the backlash was swift, strong and nearly universal. Just days after the 2020 announcement, CNN Business reported that an opinion piece ran in The Global Times (a Chinese state-run publication) calling the deal “disturbing” and warning: “If Arm falls into US hands, Chinese technology companies would certainly be placed at a big disadvantage in the market.”
The UK’s Competition and Markets Authority (CMA) opened an investigation into the proposal in early January 2021. In August they published a report warning much the same, but in less geopolitical terms — that Nvidia “would have the ability and incentive” to restrict their rivals’ access to Arm’s famed and energy-efficient semiconductor designs. A flurry of concern sounded from other quarters too, including the European Commission opening “an in-depth investigation” in October 2021.
Perhaps the fatal blow came in December 2021 when the US’s Federal Trade Commission filed a long-promised lawsuit to stop the deal from proceeding, saying the sheer size of the resulting entity would stymie competition and place too much market control in the hands of one firm.
In its complaint, it argued: “The combined firm would have the means and incentive to stifle innovative next-generation technologies, including those used to run data centres and driver-assistance systems in cars.” It was, it said, too much power to have over the tech, which has become “essential to our modern economy and society”.
Despite the heavy blood loss, the interested parties were still fighting hard. Just last month they submitted a 28-page submission to the UK Competition and Markets Authority making their case for approval. Here they wrote that critics were merely “romanticising” Arm’s history, overestimating its market share, and skipping over the company’s financial position.
Finally, with its own timeline falling apart and opposition mounting, Softbank released a statement on February 8 confirming — with apologies to Monty Python — that the deal was no more, ceased to be, expired and gone to meet its maker, stiff, bereft of life, an ex-deal if ever there was one.
Additionally, Arm put out a statement announcing a change in leadership, with long-serving Simon Segars stepping down for “personal reasons”. He will be replaced by Rene Haas, who joined Arm in 2013 and is the first American to run the company.
SoftBank will be pocketing the non-refundable deposit of $1.25bn, which will be recognised as profit in the current quarter. CEO Masayoshi Son said in an earnings presentation on Tuesday that Arm would instead be prepped for an initial public offering (IPO) before March 2023. This was Plan B, he said, but also a return to the original plan for the business post-acquisition.
Bloomberg initially reported that Arm planned to go public in the US, citing “people familiar with the matter, asking not to be identified”. This was later confirmed by the CEO, who indicated that it would most likely list on the Nasdaq. Still a fan of the big promises, Son said it would be the most significant IPO ever for the chip industry.
Even with a new head installed and a new plan in place, Son seemingly couldn’t resist the urge to criticise the regulators, arguing that merging two such “different companies” shouldn’t have been curtailed on antitrust concerns, comparing the two to makers of car engines and tyres. For the record, Nvidia designs graphics processing units (GPUs), as well as central processing units (CPUs), systems for mobile chips, as well as other hardware and software.
As despondent as the would-be dealmakers must be after what has probably been an interminable year or so, there’s another group who will be celebrating. Tension between the huge tech companies (primarily the big five: Amazon, Apple, Alphabet, Microsoft and Meta) and the regulators of the world has been worsening in recent years, and the result of this skirmish will feel like a win for the pencil pushers.
RIP. Ashes to ashes, deal to IPO.
• Thompson Davy, a freelance journalist, is an impactAFRICA fellow and WanaData member.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.