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The $75bn takeover of Cambridge-based chip designer Arm by its rival Nvidia is in jeopardy after US regulators followed the UK and Europe in moving to block “the largest semiconductor chip merger in history”.
The Federal Trade Commission has sued to stop the takeover of Arm, which has ballooned in value from $40bn to $75bn since the offer was made last September due to a stock market surge in the chip sector, as seemingly almost insurmountable opposition now mounts after regulator action in Europe and the UK.
“The FTC is suing to block the largest semiconductor chip merger in history to prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies,” said Holly Vedova, bureau of competition director at the FTC. “This proposed deal would distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine Nvidia’s rivals.”
The FTC, which now poses the biggest threat to scuppering California-based Nvidia’s takeover, said that the lawsuit should send a “strong signal that we will act aggressively to protect our critical infrastructure markets from illegal vertical mergers”.
The US is the latest market to raise concerns about the merger as countries around the world increasingly focus on the ramifications of takeovers that threaten national security and infrastructure firms in the tech industry.
The increasingly severe global shortage of chips – the “brain” within every electronic device in the world, from smartphones and iPads to cars and smart TVs – has increased takeover activity and sharpened the focus of regulators.
“The proposed vertical deal would give one of the largest chip companies control over the computing technology and designs that rivals rely on to develop their own competing chips,” the FTC said.
Arm, which employs 6,500 staff, including 3,000 in the UK, has been described as the “Switzerland” of the semiconductor industry, with its designs used by suppliers including rivals of Nvidia.
Arm, whose acquisition by Japanese group SoftBank for $32bn in 2016 raised no regulatory issues, has more than 500 clients who use its designs and compete globally including Apple, Samsung and Qualcomm.
Nvidia, which has pledged not to downsize Arm’s UK operations and to keep its open licensing model, said the deal would “help accelerate Arm and boost competition and innovation, including in the UK”.
The FTC, whose commission voted unanimously to take action and said it had cooperated with competition agencies in the European Union, UK, Japan and South Korea, disagreed. “The proposed merger would give Nvidia the ability and incentive to use its control of this technology to undermine competitors,” said the FTC. “[It would] reduce competition and ultimately result in reduced product quality, reduced innovation, higher prices, and less choice.”
Last month, the UK government ordered an in-depth investigation into Nvidia’s takeover. Nadine Dorries, the digital and culture secretary, said Arm had a “unique place in the global technology supply chain”.
The government’s intervention followed the Competition and Markets Authority’s initial findings in July that the deal raised serious competition concerns, and the regulator’s assessment that no “behavioural remedy” offered by Nvidia would be enough to address them.
Despite the mounting obstacles to the deal, Masayoshi Son, the chief executive of seller SoftBank, said last month that he expected the takeover to eventually be cleared.