Sat. May 28th, 2022


It’s uncomfortable when things go awry, the investigations that can yield a murderous blow just drag on, and everyone seems to realize that it’s over except you.

I’m obviously talking about Nvidia’s deal to buy chip design company Arm from Japan’s SoftBank, so close to a dead deal you’ll ever find.

Its downfall is beginning to feel inevitable. The only questions are how long will the end take, and what happens next?

The answer to the first, in the midst of stories that are the parties preparation to abandon the transaction is likely: a while yet. An agreement that would always be controversial, because it handed over Arm’s neutral, open to all licensing model to one of its clients stuck in regulatory investigations around the world. The US Federal Trade Commission last month sued to block it; authorities in Europe and China are investigating the agreement.

Ironically, it could be the UK, which welcomed the then acquisition of the then London-listed Arm by SoftBank as a confidence in Britain after Brexit, delivering a decisive blow. The Competition and Market Authority referred the deal in November for an in-depth investigation, both on antitrust and national security grounds, into a first for a regime now replaced by new ones. governmental powers.

Exactly why Arm’s sale to Nvidia, a California-based chipmaker, threatened national security when it was acquired by SoftBank, a Tokyo-based investment behemoth “in the national interest” remains a mystery. But the CMA’s first report was damning enough about the chances that remedies or behavioral obligations can address competition issues to think the transaction is in trouble, regardless. It will give preliminary findings in March, with a final decision in May.

The agreement will continue in the meantime. The agreement reached in 2020 only expires on September 13, two years after it was signed, or until it is blocked by regulators. All parties are committed to bringing the best efforts and a sunny mindset to get it done by then – and would like to emphasize how enthusiastic and involved they are about that task. For a start, SoftBank is sitting on $ 1.25 billion of Nvidia’s cash, which was overpaid on signing, which can be repaid if it does not comply with its many and several businesses under the original transaction.

Where would the collapse of the agreement for Arm leave? Barely thriving. The self-interested comment sent to regulators by the transaction parties makes a good point that Arm is not Arm now. In 2015, it had topline growth of 22 percent; it has outgrown middle-aged figures in recent years. Its operating costs exploded, in part due to rents to hit the doubling of its UK workforce which was a commitment of the 2016 deal. The SoftBank attempt to pile up in the Internet of Things did not yield results.

The premise is investment to make Arm competitive in new areas such as data center chip designs, if you ask Nvidia. Or a refocus and rebuilding of the business based on its traditional strengths, if you ask others. Either way, it looks like a turnaround situation, far from the jewel in the crown status that the Cambridge-based Arm has traditionally enjoyed in Britain.

Would Arm return, triumphantly, by An IPO on the London market? Perhaps. It’s not here or there that 95 per cent of its revenue comes from outside Europe, let alone from the UK. The FTSE is home to many international companies. But Arm has always been more global than many admit, founded with British technology but American money from Apple and VLSI Technology. It has grown more since 2016: most of its executive team is now based in California.

“All roads lead to the US,” one banker said when asked what would happen. “The big unknown is the British government.” Which suggests that a masterful combination is possible: that after the government blessed Arm’s takeover in 2016 in a wave of jingling flags waving, the government could in fact block its sale six years later, before launching a charm- offensive should start to win back the listing again.

helen.thomas@ft.com
@helentbiz





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