Nvidia’s $40 Billion Arm Deals Faces FTC Roadblock

The logo of Nvidia Corporation is seen during the annual Computex computer exhibition in Taipei, Taiwan, on May 30, 2017. (Tyrone Siu/Reuters)

The Federal Trade Commission has sued to block U.S. chip supplier Nvidia Corp.’s $40 billion acquisition of the SoftBank Group Corp.-backed UK chip design provider Arm.

FTC Bureau of Competition Director Holly Vedova said the proposed vertical deal could offer the influential chipmaker control over the computing technology and designs relied on by the rivals for innovative next-generation technologies, including those used to run data centers and driver-assistance systems in cars.

The proposed deal would distort Arm’s chip market incentives and undermine Nvidia’s rivals.

All major chipmakers are Arm customers, and the companies, including Qualcomm Inc., Intel Corp., and Advanced Micro Devices Inc., sell chips that compete directly with products from Nvidia, Bloomberg reports.

Apple Inc. and Amazon.com Inc. also utilize Arm technology for smartphones. The EU and the UK are already probing the deal.

Analyst Opinions

Citi analyst Atif Malik lowered his deal probability to 5 percent from 30 percent after the FTC move.

Malik sees a potential path forward if Nvidia can present remedies that, among other options, might include creating a “Chinese Wall” between the R&D engine and Arm business contracts to ease the antitrust regulatory concerns. He keeps a Buy rating on Nvidia shares with a $350 price target (8.9 percent upside).

“We have said for some time that it is unlikely this deal gets approved,” said Matt Bryson, an analyst at Wedbush Securities. “We also believe the investment community is largely of the same opinion.”

Nvidia, which made its name in graphics processors for video games, now sells chips for everything from artificial intelligence to cryptocurrency mining. “This combo just would have been too much,” said Chris Rolland, an analyst at Susquehanna Investment Group.

Price Action

Nvidia shares closed lower by 4.46 percent at $306.93 on Friday.

By Anusuya Lahiri

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