Softbank preparing for Arm IPO as Nvidia prepares to abandon takeover bid on regulatory resistance

The UK founded and based microchip designer Arm may be listed through an IPO rather than sold to U.S. peer Nvidia. A $40 billion cash-and-shares deal for Arm had been agreed between Nvidia and Softbank, the giant Japanese tech investor that is its current owner, in early autumn 2020. However, after months of pushback from regulators, Bloomberg reports that Nvidia is now “quietly preparing to abandon the deal”.

Bloomberg yesterday reported Nvidia has told partners it no longer expects to complete the acquisition. And the U.S. financial markets and business media also reports Softbank is now accelerating alternative plans for an Arm IPO as a fallback plan.

Despite the confidence expressed by the Bloomberg report that the deal is unlikely to become a reality, both companies issued statements of continued commitment to the acquisition.

An Nvidia spokesman said:

“We continue to hold the view . . . that this transaction provides an opportunity to accelerate Arm and boost competition and innovation.”

And a representative of SoftBank stated on behalf of the Japanese conglomerate:

“We remain hopeful that the transaction will be approved.”

Like the majority of the wider tech sector, the Nvidia share price has struggled this year with the company losing almost a quarter of its value over January so far. However, its share price is up by over 80% since the deal was announced in early September 2020, increasing the value of the takeover.

A 4.5% slide in the Nvidia share price yesterday, as Wall Street generally dropped on concerns over the extent of interest rate rises the Fed might introduce this year and the prospect of new conflict breaking out between Russia and Ukraine, has been largely reversed by a 3.5% gain in early trading today. Other semiconductor companies were also down yesterday, suggesting markets have not reacted strongly to the Bloomberg report.

UK-based Arm was founded in 1990 as a joint venture between Apple and Acorn Computers. Softbank acquired the company for $31 billion in 2016, taking it private and delisting it from the London Stock Exchange. At the time it was the biggest ever deal for a European technology company.

Its chip designs are among the most advanced in the world and licensed by chipmakers including Samsung and Apple, who use its designs in smartphones, tablets and IoT devices. Its designs are also used in critical infrastructure around the world.

The UK also considers Arm as an important strategic asset and ordered an in-depth investigation of the proposed Nvidia deal after the Competition and Markets Authority expressed concern. Digital and culture secretary Nadine Dorries said in November: at the launch of the investigation:

 “Arm has a unique place in the global technology supply chain and we must make sure the implications of this transaction are fully considered”.

The US Federal Trade Commission has been more aggressive and last month moved to block the acquisition on the grounds it would hand Nvidia control of technology and innovation its competitors rely on to create their own chips. Nvidia has insisted Arm would continue to operate as an independent company and it would not interfere in its commercial relationships with other companies.

However, Arm customers raised concerns they would be forced to pay higher prices under Nvidia ownership and perhaps face restricted access to new cutting-edge designs. The EC is also poring over the deal and Chinese approval is also necessary for it to go through.

Given the extent of regulatory opposition already expressed by its domestic regulator, and intense scrutiny from other international regulators, it wouldn’t be a great surprise to see Nvidia admit defeat despite yesterday’s public utterances hope has not been lost.