Collapse of Nvidia-Arm $66B Chip Deal Shows More Than Antitrust Woes

Nvidia Corp. and Arm Limited announced on Feb. 7 that they will not continue with the transaction due to “significant regulatory challenges.” This statement ends an attempted merger that started in September 2020 when the U.S. graphic chip giant agreed to buy Arm from SoftBank in what could have been the chip industry´s biggest deal. But besides antitrust concerns, a growing fear among policymakers of not having access to this essential technology may have played a bigger role.

The deal raised concerns among regulators and chip makers rivals from the beginning. Regulators in Europe and the U.K. quickly opened a second-phase investigation due to the concerns they found in the initial investigations. The U.S. Federal Trade Commission also sued to block the transaction in December 2021. Yet, the collapse of the deal comes before any of the regulators, or a judge in the case of the FTC, adopted a final decision on antitrust grounds.

The main concern among regulators was that Nvidia, after the transaction, would have the ability and incentives to restrict access to its rivals to Arm´s technology, which would eventually lead to higher prices, less choice and reduced innovation.

In the U.K. the deal also raised red flags in the government, which saw the deal as potentially affecting the national security of the country, and it decided to intervene by issuing a public notice. In the end, the government didn’t have to issue a final notice on this ground, and it just referred the case to the antitrust regulator for further investigation — but the risk of a veto by the government was a real possibility. Now that the deal is over and SoftBank has shown its intentions to take Arm public, U.K. politicians would like to see the company listed in London, but this is unclear.

While the antitrust concerns raised by U.S., U.K. and European regulators are probably well founded, the tough stance taken by regulators when it comes to the semiconductor industry, compared to other industries, shows that this is a matter of national security for most of the countries and not just antitrust. Future deals in the sector, regardless of the size, are likely to receive significant attention from regulators.

Read more: The Flip Side of Tougher Merger Rules, Enforcement

Before the collapse of the Nvidia-Arm deal, in 2018, President Trump blocked Broadcom’s $117 billion bid for Qualcomm on national security grounds even though Broadcom was in the process of becoming a U.S. company. Also in 2018, Qualcomm and the Dutch chip manufacturer NXP Semiconductor walked away from a $44 billion deal because they failed to get all the necessary approvals.

Supply chain problems and microchip shortages around the world have become a concern not only for companies that had to slow down or even stop production, but among politicians who see this issue as a national sovereignty problem given the strong reliance on providers from Asia. This is the case in the European Union, which didn’t formally block the Nvidia-Arm deal but raised significant concerns. The EU has recently seen how its industry is more and more reliant on Asian companies to provide the chips needed by the EU industry. To reverse this situation, the EU is launching Tuesday (Feb. 8) its European Chip Act, which aims at increasing the production capacity of semiconductors in Europe, providing billions of euros in public support for companies that establish new companies in the region.

Read also: Europe Continues Regulatory Spree with European Chip Act

Additionally, countries around the world have passed in the last two or three years different bills to protect national targets from foreign takeovers based on national security interests. These bills seek to protect certain industries which usually include chips, semiconductors, artificial intelligence, data infrastructure, quantum technologies and other sensitive areas.

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