The UK is considering blocking a takeover of Arm Ltd by Nvidia Corp due to potential risks to national security, people familiar with the discussions said.
Nvidia, the biggest US chip company by market capitalization, announced in September last year a US$40 billion deal to acquire Arm from Japan’s Softbank Group Corp, as part of a push to spread its reach in the surging market for semiconductors.
British Secretary of State for Digital, Culture, Media and Sport Oliver Dowden in April asked the Competition and Markets Authority (CMA) to prepare a report on whether the deal could be deemed anti-competitive, along with a summary of any national security concerns raised by third parties.
The assessment, delivered late last month, contains worrying implications for national security and the UK is currently inclined to reject the takeover, a person familiar with government discussions said.
The UK is likely to conduct a deeper review into the merger due to national security issues, a separate person said.
No final decision has been taken and the UK could still approve the deal alongside certain conditions, the people added.
Dowden is set to decide on whether the merger needs further examination by competition authorities.
“We continue to work through the regulatory process with the UK government,” an Nvidia spokesperson said in a statement. “We look forward to their questions and expect to resolve any issues they may have.”
Nvidia shares were little changed on Tuesday, while Softbank shares fell 1.5 percent in Tokyo yesterday.
A spokesperson for the CMA declined to comment.
Arm owns the most widely used set of standards and designs in the chip industry. Its technology is at the heart of most of the world’s smartphones and is finding an increasing role in computing, including in server machinery that runs corporate and government systems.
The Cambridge-based company has acted as a neutral party which sells chip blueprints and licenses its standards to a wide range of major technology companies, many of whom are fierce competitors.
Ownership by Softbank, which acquired it in 2016 and which does not overlap with Arm’s customers, has preserved that neutrality.
It is unclear how Arm’s change from Japanese to US ownership would affect UK national security, but since Softbank’s acquisition, semiconductor technology has become a new focus for politicians.
Newport Wafer Fab Ltd, based in Wales, is currently under review by the British government after it agreed to be sold to a Chinese manufacturer for about ￡63 million (US$88 million).
Arm’s position at the heart of the chip industry means the deal has already raised concerns, because Nvidia directly competes with Arm’s customers like Qualcomm Inc, Intel Corp and Advanced Micro Devices Inc.
Others have publicly endorsed the change of ownership.
Some of Nvidia’s rivals have said they would be ready to invest in Arm to help it continue independently, if Nvidia is not allowed to buy it. The deal is also subject to regulatory approvals in China, the EU and the US.
Nvidia has pledged to maintain Arm’s independence if the takeover is completed and invest heavily to increase its reach, but any takeover deal is likely to attach conditions, such as maintaining the about 3,000 UK employees and keeping the company’s headquarters in Cambridge, England.
Nvidia chief executive Jensen Huang (黃仁勳) has said he remains confident that regulators would approve the company’s acquisition of Arm.
If the deal is blocked by regulators, Softbank is likely to pursue an initial public offering (IPO) of Arm, two people familiar with the matter said.
In a blog post last month, Arm chief executive Simon Segars said: “The combination of Arm and Nvidia is a better outcome than an IPO.”
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