No For Nvidia?​

By Rachel Strickland​

The Story

The UK Competition and Markets Authority (CMA) has determined that technology company Nvidia’s proposed takeover of semiconductor and software producer Arm requires an in-depth investigation.

This is due to the fact that the $40 billion deal presents “serious competition concerns” (Financial Times).

The UK is not alone in wanting to investigate the acquisition; the US, Europe and China have launched probes into the proposed acquisition, while companies such as Huawei, Qualcomm, Microsoft and Google have also expressed concern (CNBC).

Their discontent arises from Arm’s flagship product – the semiconductor chip - seen as the “brain” in all electronic devices, and paramount to diverse industries from mobile phones, data centres, gaming, and autonomous vehicles (The Guardian).

Many of Nvidia’s rivals have licensed Arm’s IP to produce semiconductor chips, and theoretically, the magnitude of any restricted access could drastically reduce competition (BBC). While Nvidia has pledged to maintain Arm’s open licensing model, a guarantee to not engage in anti-competitive practices has been rejected so far (Financial Times).

What it Means for Businesses and Law Firms

The takeover comes amidst a severe shortage of semiconductor chips globally (The Guardian).

Domestically, the UK government is purportedly taking an “increasingly active interest” in deals involving strategic British companies (Financial Times). This interest is multifaceted; firstly, Brexit and the Covid-19 pandemic have exposed supply-chain fractures and the need to preserve manufacturing capacity (Financial Times). Similarly, with protectionism on the rise, UK policymakers are investing in nurturing home-grown digital champions, and improving the UK technology sector’s competitiveness (Financial Times).

With semiconductors central to technologies in the defence sector, UK culture secretary Oliver Dowden served an intervention notice on the Nvidia deal on the grounds of national security (Financial Times; The Guardian). This comes amid recent concerns over several proposed deals in the defence sector: the £2.6 billion proposed bid for UK defence group Ultra Electronics by US private equity backed Cobham, and the £7.1 billion proposed takeover of defence company Meggitt by US competitor Parker Hannifin (Financial Times).

From a regulatory perspective, the CMA is usually responsible for investigating competition concerns, while the Secretary of State is given power under the Enterprise Act 2002 to issue intervention notices in takeovers and mergers on the grounds of national security, financial stability and media plurality (Financial Times; Practical Law).

In addition, the National Security and Investment Act 2021, which will come into force on 4 January 2022, will extend governmental power to intervene in transactions on national security grounds (legislation.gov.uk; Travers Smith website).

Morrison & Foerster LLP is advising SoftBank on the sale of Arm, Latham & Watkins LLP is representing Nvidia, and Hogan Lovells is advising Arm (Global Legal Chronicle).