Nvidia to Acquire Arm from SoftBank for $40B

Issue 36

09.14.20 - Nvidia is moving to acquire Arm for $40 billion. One of SoftBank’s best investments is about to come into maturity. Arm is the most important designer of processors in smart mobile devices and is quickly gaining a footprint in other areas. Got an iPhone, you use Arm. Got a Samsung, Arm. Arm designs the leading architecture for CPUs.

It competes with Intel’s architecture and clashes with AMD in some of its other offerings. Nvidia is AMD’s chief competitor. It is the leader in the GPU space and virtually holds a monopoly with its CUDA computing platform. It’s machine learning library TensorFlow which is a convolutional neural network is also one of the most advanced in its space. This deal is expansionary and would diversify Nvidia. These two companies coming together would create a processing architecture & artificial intelligence powerhouse that would be second to none.

The deal has a multipart structure of cash and stock, it’s designed so that SoftBank can still capture high upside growth that SoftBank plays for and enough cash to pad some of its Vision Fund loses. SoftBank will receive $2 billion in cash on the offset of signing the deal, then another $10 billion in cash, and $21.5 billion in Nvidia stock at closing.

This will give SoftBank roughly a 10% stake in Nvidia as well as an additional $5 billion in cash and stock as a performance-based payout. Arm employees will receive $1.5 billion in equity compensation. SoftBank bought Arm in 2016 for $32 billion. The Japanese conglomerate stands to make over $6.5 billion on its investment.

The acquisition does present challenges, Nvidia is a California based company, ARM is based in the UK, with operations in China and the EU. The cross-border ownership structure and the potential antitrust scrutiny may potentially delay or even stop the deal. Nvidia has pledged to expand its presence and double down on the UK and make its UK footprint a core part of its engineering operations.

It has stated that it seeks to further make Arm’s Cambridge operations as a global leader in AI research. US regulators may potentially ignore antitrust concerns in efforts to gain further leverage over China. However, it is expected that other technology firms may mount substantial lobbying efforts to prevent this deal from going through as they stand to lose massively over the coming decade in the shadow of a combined Arm and Nvidia.

Source: Brookfield Brief