The Nvidia-Arm deal is off

Now it is official Nvidia has announced that its proposed acquisition of ARM Holdings from SoftBank Group Corp. has been terminated.

The parties agreed to terminate the agreement because of “significant regulatory challenges preventing the consummation of the transaction,” despite considerable efforts by the parties to assuage concerns over the deal.

Arm will now start preparations for an initial public offering (IPO), possibly during the fiscal year ending March 31, 2023.

The deal was announced on Sept. 13, 2020 but ran into almost immediate opposition from UK sources, as well as some Arm licensees. Critics of the merger said Nvidia would play favorites with Arm licensees, which Nvidia vehemently denied it would ever do.

In terminating the agreement, SoftBank announced it will retain the $1.25 billion prepaid by Nvidia, which will be recorded as profit in the fourth quarter, and Nvidia will retain its 20-year Arm license.

SoftBank did not say how much it expects to raise from the IPO but there’s a good chance it will be significantly less than the $40 billion Nvidia was prepared to pay for the company.

“Arm has a bright future, and we’ll continue to support them as a proud licensee for decades to come,” said Jen-Hsun Huang, founder and CEO of Nvidia in a statement. “Arm is at the center of the important dynamics in computing. Though we won’t be one company, we will partner closely with Arm … I expect Arm to be the most important CPU architecture of the next decade.”

Analysts weren’t terribly surprised at the turn of events. If anything, a few analysts think the end of the merger was a good idea.

Jon Peddie, president of Jon Peddie Associates, says everybody wins in this case. “Nvidia gets to put a lot of stock back in their pocket, which is worth a lot more than when they committed. Softbank gets a cancelation fee–coffee money to them–Arm gets an IPO, and all the Arm customers relax because they don’t have to worry about big bad Nvidia impacting their product plans, not that it would,” he said by email.

Glenn O’Donnell, VP and research director for Forrester Research, said he believes that the efforts by the US and EU to bring chip manufacturing back to their shores to geographically rebalance the supply chain put more pressure on the NVIDIA-Arm merger.

“Regulators see consolidation as being anticompetitive. With all such issues, the truth is neither black nor white, but that doesn’t matter much. We now have an environment that is not conducive to such a merger,” he said.

He added that while the merger would have been a major strategic coup for Huang, he doesn’t need to “own” the Arm assets. He can and does license the architecture like many others do.

“In the end, I see the collapse of this deal as a win for the UK, where Arm is based, and for competitors like Intel and AMD. I seriously doubt it will slow down the trajectory Nvidia has been on, however. Don’t underestimate Huang’s ability to drive innovation regardless,” he added.

Jim McGregor of Tirias Research concurred. “It has little impact on Nvidia,” he said. “It’s a setback in terms of their ultimate ambitions, but it’s not like it hurts them for their Arm development . They are still a key Arm partner. In the long run, maybe it’s good for Nvidia because it’s not tying up $40 billion. So Nvidia has funds for acquisitions that are more reasonable and cohesive to their product strategy.”

Changing of the guard at Arm

Somewhat overlooked in all the news about the termination of the merger, is the retirement of Arm CEO Simon Segarsis, who is retiring after 30 years with the company. For now, Segars will support the leadership transition in an advisory role for Arm.

His replacement? Rene Haas, who has served as president of the Arm IP Products Group (IPG) since 2017. Before joining Arm in 2013, Haas spent seven years at Nvidia, as vice president and general manager of its computing-products business.