NVIDIA and SoftBank terminate the $40 billion Arm acquisition

Background

On 13 September 2020, NVIDIA and SoftBank Group announced a definitive agreement under which NVIDIA would acquire Arm Limited from SoftBank.^[1] Arm's business is not mainly the sale of finished chips: it designs processor cores and instruction set architectures and licenses them to other semiconductor companies, which build them into products of their own. Because of that licensing model, a change of ownership reaches every company that depends on Arm designs, not just the two parties signing the agreement.

The termination

On 7 February 2022, the two companies announced that the transaction was terminated.^[1] The reason given was regulatory. Significant regulatory challenges were preventing the transaction from being completed, and the announcement stated that both sides had made good faith efforts before agreeing to end the process.^[1] More than a year passed between the announcement of the definitive agreement and the decision to abandon it.

What each side kept

The same announcement set out how the deal would be unwound. SoftBank would retain the $1.25 billion that NVIDIA had already paid, and that amount was to be recorded as profit in the fourth quarter.^[1] NVIDIA kept its 20-year licence to Arm technology, so its access to the architecture survived the failure of the acquisition.^[1] The release also noted that 24.99 percent of Arm's shares were attributable to SoftBank Vision Fund 1.^[1]

Arm's next step

With the sale abandoned, Arm turned to a different route to the public markets. The company would begin preparations for a public offering, and SoftBank said that, in coordination with Arm, it would start those preparations within the fiscal year ending 31 March 2023.^[1] A listing would give Arm shareholders a market price for the business instead of a negotiated sale price.

What the two sides said

Jensen Huang, NVIDIA's chief executive, said that although the companies would not become one, they would partner closely with Arm, and that he expected Arm to be the most important CPU architecture of the next decade.^[1] Masayoshi Son, SoftBank's chief executive, said that Arm was becoming a centre of innovation not only in the mobile phone revolution but also in cloud computing, automotive, the Internet of Things and the metaverse.^[1] Both statements describe continued cooperation rather than a clean break.

Why it matters

The outcome left the structure of the industry roughly where it had been. Arm stayed under SoftBank's ownership and headed towards a public offering rather than becoming part of a company that also designs its own chips, and the licensees who build Arm-based products continued to deal with Arm as a supplier of designs.^[1] For NVIDIA, the 20-year licence meant the architecture remained available to it even without ownership.^[1] For SoftBank, the retained $1.25 billion prepayment softened the financial result of a transaction that had been announced with much larger expectations, and the Vision Fund's stake in Arm remained part of the picture as the company prepared to list.^[1]