Nvidia’s acquisition of Arm is reportedly off due to regulatory concerns

Nvidia Corp.’s deal to acquire Arm Ltd. is reportedly no longer due to regulatory concerns.

The Financial Times, referring to three people with direct knowledge of the transaction, alleges that that deal has collapsed after regulators in the U.S., U.K. and European Union raised serious concerns about its effects on competition in the semiconductor industry.

It’s highly possible that the deal may have collapsed but it’s not official as of the time of writing. Nvidia, Arm and SoftBank Group Corp., the latter the owner of Arm, has not confirmed the report as of 9 p.m. EST.

The regulatory concerns into the deal have been longstanding, however. The U.K.’s top antitrust regulator – the Competition and Markets Authority, was first out of the gate, launching an investigation into the deal in August. The CMA’s investigation looked to scrutinize the proposed transaction more closely because it believed that Nvidia’s acquisition of Arm could harm competition in the chip market. Specifically, the regulator was concerned that Nvidia may have an incentive to restrict competitors’ access to Arm chip blueprints.

Arm indicated it would take steps to prevent potentially anticompetitive behavior following the deal to address those concerns. Arm proposed that it would “keep the firewalls up between the two companies relative to confidentiality” and committed not to give Nvidia earlier access than competitors to new technology. Nvidia, in turn, stated that Arm would continue to operate its current open licensing model.

The U.S. Federal Trade Commission filed a lawsuit in December to block the deal. The FTC sued Nvidia directly on antitrust grounds, claiming that “the proposed vertical deal would give one of the largest chip companies control over the computing technology and designs that rival firms rely on to develop their own competing chips.”

That the deal was in trouble was first reported Jan. 25. It was claimed that Nvidia was quietly preparing to abandon the transaction due to a failure to secure necessary regulatory approvals.

The earlier report also suggested that SoftBank was preparing to take Arm public if and when the deal officially collapsed. The FT reports notes that if and when the deal collapses, Softbank will receive a break-up fee of up to $1.25 billion and plans to unload Arm through an initial public offering before the end of the year.

When first reported in September, the deal valued Arm at around $40 billion. That transaction was meant to be $21.5 billion in stock and $12 billion in cash upfront for Arm, including a $2 billion payment at signing. An additional $5 billion was on the table in earnouts if Arm’s performance meets certain targets, while $1.5 billion more will be paid to Arm employees in Nvidia stock.

Nvidia’s share price then boomed and the deal, based on the offer on Nvidia’s shares, valued Arm at $87 billion in November. Based on Nvidia’s current share price, the deal is valued at around $66 billion.

Given the previous report in late January that the deal was in trouble, Nvidia investors didn’t seem fussed by the news that the acquisition is reportedly off. Nvidia’s shares were up 1.68% in regular trading, closing at $247.28 at 4 p.m. EST.

Image: Nvidia