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Nvidia calls off $40 billion acquisition of Arm: report

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Nvidia Corp. is giving up on its attempt to acquire chip designer Arm Ltd. from Softbank Group Corp., according to a report Monday.

Nvidia NVDA agreed to acquire Arm for $40 billion in cash and stock in 2020, in what would have been the biggest semiconductor merger in history. The deal faced immediate opposition from other chip companies and regulators in the U.K., where Arm is located, and U.S. regulators had also stepped in the way.

The Financial Times reported after the market closed Monday that the deal would be called off, leaving Softbank JP:9984 with a $1.25 billion break-up fee. Nvidia and Softbank declined comment Monday afternoon.

Arm licenses its semiconductor designs to companies, where they are mostly used in low-power-consuming devices such as smartphones, tablets and wearables. Arm licensees are also among Nvidia’s competitors in the semiconductor sector, including Intel Corp. INTC, Advanced Micro Devices Inc. AMD and Qualcomm Inc. QCOM. Nvidia promised that Arm would continue working with other chip companies, but the competitive aspect seemed to set off alarm bells for regulators worldwide.

“Assuming the report proves true (and it seems credible), the news should be the complete opposite of a shock,” Bernstein analyst Stacy Rasgon wrote in a note to clients Monday evening. “The deal has been the subject of nothing but complaints from almost the instant it was announced, with numerous regulators voicing opposition (the U.K. launching a national security investigation, the U.S. FTC aggressively suing to block it, and nothing but loud silence from China) as well as howls from many other Arm licensees.”

Nvidia’s stock was largely stable in the extended session after the report hit, gaining 0.5%. Shares took a hit late last year, after the U.S. Federal Trade Commission sued to stop the deal, and have slipped farther early in 2022 along with other heated tech stocks. Nvidia is still worth more than $600 billion, though, and Rasgon doesn’t see the dissolution of the Arm deal potentially causing a huge rerating by Wall Street.

See also: Nvidia passes Facebook in market cap after woeful week for Meta

“While owning Arm could have been wonderful, we don’t believe they had
to have it either,” Rasgon wrote. “In our opinion, the impetus for the deal was to help create and drive a broader ecosystem for Arm, particularly in the data center; Nvidia presumably can and will continue their standalone efforts here, though it is possible such efforts could have been accelerated through owning the asset.”

The Financial Times also reported that Softbank would make a change at the top of Arm, replacing CEO Simon Segars with Rene Haas, and seek an initial public offering for Arm this year.

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