U.K. government to block $40 B chip deal with Nvidia

U.K. government to block $40 B chip deal with Nvidia

The U.K. considers blocking a takeover of Arm Ltd. by Nvidia Corp. because of potential risks to national security, according to people familiar with the discussions.

Nvidia, the biggest semiconductor company by market capitalization, announced a $40 billion deal to acquire Arm - currently owned by Japanese conglomerate SoftBank Group Corp. - as part of a push to spread its reach into the surging market for semiconductors in September 2017.

In April, U.K. Culture Secretary Oliver Dowden asked the Competition and Markets Authority to prepare a report on whether the deal could be deemed anti-competitive, along with a summary of any national security concerns raised by third parties.

The assessment, delivered in late July, contains worrying implications for national security and the U.K. is inclined to reject the takeover, a person familiar with government discussions said. The U.K. is likely to conduct a separate review into the merger due to national security issues, a person said.

No final decision has been taken and U.K. could still approve the deal together with certain conditions added, the people added. Dowden is on track to determine whether the merger needs further investigation by the U.K. competition authorities.

'We continue to work with the U.K. government through regulatory processes, said an Nvidia spokesperson in a statement. 'We look forward to their questions and are sure to resolve any issues they may have.

Stocks in Nvidia all fell as much as 2.7% in trading on Tuesday.

If regulators do block the deal, it will impede Nvidia's ability to dominate the computing chip market, we believe investors already had low expectations that the deal would be completed.

A spokesperson for the CMA declined to comment. A U.K. official declined to comment on the matter.

Arm is the largest range of standard and designs in the $400-billion chip industry. Its technology is at the heart of almost all world's smartphones and is finding an increasing role in computation, including server machinery that runs corporate and government systems.

The Cambridge-based company has acted as a large, neutral entity that licenses chip blueprints and sells its standards to a wide range of major technology companies, many of whom are fierce competitors. Ownership by Japan's SoftBank, which acquired it in 2016 and which doesn't overlap with Arm customers, has preserved that neutrality.

It is unclear how changes from Japanese ownership to American ownership will affect U.K. national security. However, since SoftBank's acquisition, semiconductor technology has become a new focus for politicians.

The chip industry became a central part of the historic trade war between U.S. and China and the U.S. has taken action to block the country's access to know-how owned mainly by the U.S. companies that dominate the industry, particularly china. Arm's facilities in China currently entail restrictions on the sale of chips technology, as the company operates there.

Newport Wafer Fab Ltd. based in Wales is currently under review from the U.K. Government after it has agreed to be sold for around 63 million pounds by a Chinese manufacturer for around 60mpounds.

Prime Minister Boris Johnson has moved to protect critical national infrastructure including barring Chinese-owned Huawei Technologies Co. and he is also planning to press ahead with a flagship nuclear project without Chinese funding, according to a person familiar with the matter.

Arm's position at the heart of the chipmaking industry means that the deal has already raised concerns because Nvidia competes directly with Arm customers such as Qualcomm Inc. Intel Corp. and Advanced Micro Devices Inc. Other's have publicly endorsed the change of ownership.

Some of Nvidia rivals have said they would be ready to invest in Arm to help it continue independently if Nvidia isn't allowed to buy it. The deal is also subject to regulatory approvals in the U.S. and China, Europe and the European Union.

Nvidia is pledged to increase its access if the takeover is completed and invest heavily to maintain its independence. But any takeover deal is likely to attach conditions such as keeping the general staff of the U.K. and maintaining the company's headquarters in Cambridge.

Sergeant Arm. Jensen Huang has said he remains confident regulators will approve Nvidia's purchase of Arm.

However, if the deal is blocked by regulators, SoftBank is likely to pursue an IPO of ARM, according to two persons familiar with the matter. In a July blog post in July, ARM CEO Simon Segars said: "The combination of NVIDIA and Arm is a better outcome than an IPO.