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: Softbank plans IPO for ARM after Nvidia calls off $40 billion acquisition

Nvidia Corp. is giving up on its attempt to acquire Arm Ltd. from Softbank Group Corp., which said Tuesday that it will instead take the spurned chip designer public.

Nvidia NVDA, +1.68% agreed to acquire Arm for $40 billion in cash and stock in 2020, in what would have been the biggest semiconductor merger in history. The deal faced immediate opposition from other chip companies and regulators in the U.K., where Arm is located, and U.S. regulators had also stepped in the way.

In a statement. Softbank 9984, -0.90% said the two sides agreed to terminate the deal owing to those “regulatory challenges.” An initial public offering of Arm will take place within the fiscal year ending March 31, 2023, Softbank said in a statement. The Financial Times had reported Monday that the deal would be called off.

The deal’s collapse leaves Softbank with a $1.25 billion break-up fee that it said would be recognized as profit in the fourth quarter of the fiscal year ending March 31, 2022. Softbank also reported a sharp fall in fiscal third-quarter profit, notably from its Vision Funds unit.

Arm licenses its semiconductor designs to companies, where they are mostly used in low-power-consuming devices such as smartphones, tablets and wearables. Arm licensees are also among Nvidia’s competitors in the semiconductor sector, including Intel Corp. INTC, +0.35%, Advanced Micro Devices Inc. AMD, +0.06% and Qualcomm Inc. QCOM, -2.44%. Nvidia promised that Arm would continue working with other chip companies, but the competitive aspect seemed to set off alarm bells for regulators worldwide.

“Assuming the report proves true (and it seems credible), the news should be the complete opposite of a shock,” Bernstein analyst Stacy Rasgon wrote in a note to clients Monday evening. “The deal has been the subject of nothing but complaints from almost the instant it was announced, with numerous regulators voicing opposition (the U.K. launching a national security investigation, the U.S. FTC aggressively suing to block it, and nothing but loud silence from China) as well as howls from many other Arm licensees.”

Nvidia’s stock was largely stable in the extended session after the report hit, gaining 0.5%. Shares took a hit late last year, after the U.S. Federal Trade Commission sued to stop the deal, and have slipped farther early in 2022 along with other heated tech stocks. Nvidia is still worth more than $600 billion, though, and Rasgon doesn’t see the dissolution of the Arm deal potentially causing a huge rerating by Wall Street.

See also: Nvidia passes Facebook in market cap after woeful week for Meta

“While owning Arm could have been wonderful, we don’t believe they had
to have it either,” Rasgon wrote. “In our opinion, the impetus for the deal was to help create and drive a broader ecosystem for Arm, particularly in the data center; Nvidia presumably can and will continue their standalone efforts here, though it is possible such efforts could have been accelerated through owning the asset.”

The Financial Times also reported that Softbank would make a change at the top of Arm, replacing CEO Simon Segars with Rene Haas, and seek an initial public offering for Arm this year.

Barbara Kollmeyer contributed to this report

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