FTC Lawsuit Fuels Doubt That Nvidia-Arm Merger Will Win Regulatory Approval

Prospects for the Nvidia-Arm merger winning approval became less likely following the U.S. Federal Trade Commission’s move to block it. The FTC, which previously raised concerns, confirmed its opposition Thursday by filing a lawsuit objecting to the $40 billion deal.

The two companies agreed to the deal in September 2020 that would have Nvidia acquiring Arm from Softbank Group. From the outset, it was clear it would be an uphill battle to gain approval from regulators. While Nvidia and Arm see coming together as a way to accelerate innovation, regulators indeed are skeptical.

Combining processor designer Arm with chip supplier Nvidia could stifle advances in data center infrastructure and driver-assisted vehicles, according to the FTC. The combined company would have control over Arm’s chip designs that Nvidia rivals also rely on, the FTC noted.

FTC Statement

Holly Vedova, director of the FTC’s Bureau of Competition said in a statement: “Tomorrow’s technologies depend on preserving today’s competitive, cutting-edge chip markets. This proposed deal would distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine Nvidia’s rivals. The FTC’s lawsuit should send a strong signal that we will act aggressively to protect our critical infrastructure markets from illegal vertical mergers that have far-reaching and damaging effects on future innovations.”

Nvidia had recently acknowledged that it was aware that the FTC was leaning in the direction of blocking the deal. During last month’s earnings call, Nvidia CFO Colette Kress said the company was making its case to the FTC. Kress also noted that regulators in the U.K., where Arm has its headquarters, have raised concerns about competition and national security. China’s antitrust authority is also still reviewing the deal, she added.

“Despite these concerns, and those raised by some Arm licensees, we continue to believe in the merits and the benefits of the acquisition to Arm, to its licensees and the industry,” she said. “We continue to believe in the merits and benefits of the acquisition.”

Making the Case

Jensen Huang, Nvidia’s founder and CEO, signaled from the outset that he has anticipated the deal would face regulatory scrutiny. During a Six Five Summit session in June moderated by Moor Insights’ founder and principal analyst Patrick Moorhead, Huang said the Nvidia-Arm merger would benefit customers.

Nvidia’s Jensen Huang

“The benefits to customers will be more and better IP, more accelerated road maps and hopefully taking Arm from the cloud to the edge to IoT and HPC — everything,” Huang said. “The breadth of computing today is gigantic.”

Arm CEO Simon Segars, also participating in that session, added: “With this combination, we’ll be able to look at more markets at the same time and go deeper and further up the stack, creating a richer portfolio of IP that companies can then innovate on top of to create even more competitive products — so I think this is great for competition.”

Nevertheless, many analysts believe the FTC’s lawsuit makes it highly unlikely the deal will win approval.

“Nobody thinks this is going to close,” Bernstein Research analyst Stacy Rasgon told MarketWatch. Citibank analysts added that the FTC’s action reduced the probability of the deal closing from 30% to just 5%.

The FTC said it will hold an administrative trial on the issue starting Aug. 9, 2022.