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SAN FRANCISCO — Nvidia, the Silicon Valley chipmaker, has ended its nearly 18-month effort to buy Arm, which licenses the chip technology used in most smartphones.
Nvidia, a fast-growing company whose chips are best known for rendering images in video games, in September 2020 offered then-valued $40 billion in cash and stock for Arm, making it the most expensive deal ever among chip companies. Nvidia made the offer to buy Arm from SoftBank, the Japanese conglomerate that has owned the British company since 2016. Nvidia’s rising share price then drove the value of the deal up to around 60 billions of dollars on Monday.
But the blockbuster deal has encountered setbacks, including legal action by the Federal Trade Commission in December to block the acquisition, as well as opposition from UK regulators.
Nvidia and SoftBank said Tuesday morning they had agreed to end the planned deal due to “significant regulatory challenges.”
The end of the deal is a blow to Nvidia and its chief executive Jensen Huang, which has propelled the company’s chips into new applications, such as artificial intelligence software run by cloud giants. Huang argued that Arm, whose microprocessor technology is contained in more than 25 billion chips sold each year, could help give Nvidia a broader position in data centers similar to rivals like Intel.
But Qualcomm, Microsoft and others who license Arm technology have argued the deal could hurt their businesses. This resonated with some regulators.
In its lawsuit to block the deal, the FTC claimed that Nvidia, which also licenses Arm technology, would be able to restrict access to this technology or manipulate the price paid by other companies. chips for technology. Nvidia could also misuse confidential information those companies shared with Arm, the agency said.
Nvidia and Arm rejected these arguments. Mr. Huang has repeatedly insisted that Nvidia will retain Arm’s business model. He also said the deal would boost innovation because Nvidia’s financial resources would allow Arm to develop more technology faster.
Nvidia also offered solutions to ease regulators’ concerns. These included the creation of an entirely separate licensing entity, as well as the licensing of Arm-based intellectual property developed by Nvidia to all companies on a non-discriminatory basis.
“There is no evidence that a combination of Nvidia and Arm would have the ability or inducement to harm competition,” lawyers for Nvidia, SoftBank and Arm argued in a response to the FTC complaint. .
Regardless of who might have prevailed in court, the long delays in closing the deal posed problems for Arm and SoftBank. SoftBank had paid $32 billion for Arm in 2016, part of a bold bet by its chief, Masayoshi Son, on a global increase in internet-connected devices, and was looking to cash in on the deal.
SoftBank now plans to take Arm public, in the fiscal year beginning in March. Arm said Simon Segars, its chief executive, decided to step down after 30 years with the company given the demands of its IPO. He is replaced by René Haas, a longtime senior executive.
“Our business has never been better,” Haas said in an interview, but added that the uncertainty over the deal was not helpful. “It is very clear that the regulatory climate has become more difficult.”
Nvidia’s Mr. Huang has vowed to remain an Arm technology user. “Although we are not one company, we will work closely with Arm,” he said in a statement.
The end of the case is not a surprise. Many Wall Street analysts had concluded after the FTC lawsuit that Arm should make other plans. Last month, Bloomberg reported that Nvidia was likely to drop the effort. The Financial Times reported earlier Monday that the deal was called off.
“It’s safe to say that virtually no one in the investment community expected it to close anyway,” Sanford C. Bernstein analyst Stacy Rasgon wrote in a research note last month.
He suggested that Nvidia should be able to continue its recent momentum in the data center market. The company has also been propelled by strong demand for chips associated with AI, video games, assisted driving and bitcoin mining.
Arm first went public in 1998 and remained public until the SoftBank acquisition. New Street Research analyst Pierre Ferragu wrote earlier this month that Arm should be able to successfully go public again, at a valuation in the $45 billion range.