Nvidia's share price fell as much as 3.1% in pre-market trading as investors wondered if UK regulators will allow its $40 billion acquisition of Arm to go through.
The UK Secretary of State for Digital, Culture, Media and Sport today announced that he is asking the Competition and Markets Authority (CMA) to investigate the Nvidia-Arm merger because he believes the deal could have national security implications.
CMA has until July 31 to "prepare a report on the competition and national security aspects of the proposed transaction" for the UK Secretary of State. Then it's up to the Secretary to decide if Nvidia's acquisition of Arm will be allowed to proceed.
Nvidia announced its plan to acquire Arm from SoftBank in September 2020. (SoftBank will keep the company's IoT division.) The proposal offered SoftBank a mix of cash and stock worth $40 billion at the time.
The acquisition stands out for two reasons. The first is that it's the second-largest semiconductor industry acquisition to date. The second is that Arm's list of licensees includes the likes of Apple, Qualcomm, Samsung, and other leading tech companies.
Nvidia said when it announced the deal that it would uphold Arm's licensing model, which was predicated upon customer neutrality. But regulators were all but guaranteed to scrutinize a deal involving tech used in well over 180 billion chips. Companies such as Qualcomm, Microsoft, and Google have all complained about the acquisition to regulators. And those are just the companies whose complaints have been reported—the true list is probably longer.
Nvidia CEO Jensen Huang has stayed optimistic about the deal's chances, however, saying as recently as GTC 2021 that he believes the acquisition will move forward.
The company also revealed its Arm-based Grace CPU, as well as a followup called Grace Next set to debut in 2025, at GTC 2021. The development of those products isn't contingent upon this deal moving forward, but it certainly wouldn't hurt.
Either way it's clear that Nvidia's acquisition of Arm won't be finalized any time soon, and in the meantime, the dipping share price makes it seem like investors are worried the company is more likely to pay the $1.25 billion breakup clause.