The government has ordered an in-depth investigation into the takeover of the Cambridge-based chip designer Arm by its US rival Nvidia, in a move that could result in the $54bn deal being blocked.
Nadine Dorries, the digital and culture secretary, has ordered the UK competition watchdog to launch a “phase 2” investigation on public interest grounds, citing competition and national security concerns.
The move follows the Competition and Markets Authority’s initial findings in July that the deal raised serious competition concerns, and the regulator’s assessment that no “behavioural remedy” offered by Nvidia would be enough to address them.
Arm has been described as the “Switzerland” of the semiconductor industry, with its designs used in chips that act as the “brain” in all electronic devices from self-driving cars to smartphones, including being used heavily by rivals to Nvidia.
“Arm has a unique place in the global technology supply chain and we must make sure the implications of this transaction are fully considered,” said Dorries. “The CMA will now report to me on competition and national security grounds and provide advice on the next steps.”
There have been concerns about the threat to Britain’s economy and national security from a string of recent takeovers of UK companies by foreign rivals and private equity firms. The government has beefed up its powers to block the takeover of key national assets under the new National Security and Investment Act.
“The government’s commitment to our thriving tech sector is unwavering and we welcome foreign investment,” said Dorries. “But it is right that we fully consider the implications of the transaction.”
Nvidia moved to buy Arm from Japan’s SoftBank last year in a $40bn (£30bn) cash and shares deal. Nvidia’s share price has rocketed since then, now valuing the deal at $54bn.
The California-based firm’s offer for Arm came just as the semiconductor industry made headlines when a global shortage began to disrupt the manufacturing of a swathe of consumer goods from mobile phones to cars, making control of companies in the sector a geopolitical issue.
Arm Holdings, which employs 6,500 staff, including 3,000 in the UK, has about 500 users of its designs worldwide including Apple, Samsung, Qualcomm and Nvidia.
“We plan on addressing the CMA’s initial views on the impact of the transaction on competition,” said Nvidia. “And we will continue to work with the UK government to resolve its concerns.”
Nvidia, which has pledged not to downsize Arm’s UK operations and to keep its open licensing model, said the deal would “help accelerate Arm and boost competition and innovation, including in the UK”.
The CMA now has 24 weeks to conduct its investigation, although this can be extended by up to eight weeks. The European Commission announced an in-depth inquiry at the end of October.
Margrethe Vestager, the EU’s executive vice-president in charge of competition and digital policy, said analysis had shown that the deal could “lead to restricted or degraded access to Arm’s [intellectual property], with distortive effects on many markets where semiconductors were used”.
Despite the mounting obstacles to the deal, Masayoshi Son, the chief executive of SoftBank, said this month that he expected the takeover to eventually be cleared.
Neil Campling, the head of TMT research at Mirabaud, said: “It has been one-way traffic for the UK silicon industry in recent years. Once a bastion of leading players, many UK semiconductor companies have been sold off to foreign owners. So it is about time the UK realised just how important a key technology enabler based in the country is to the global electronics ecosystem.”
Earlier this year Boris Johnson stepped in to review the purchase of the UK’s largest producer of semiconductors by a Chinese-owned manufacturer, after being criticised for waving the deal through when the Welsh secretary said he was “satisfied” that security risks had been taken into account.