Nvidia Buys SoftBank’s Arm in Record $40 Billion Chip Deal

Ian King (Bloomberg) -- Nvidia Corp. said it agreed to buy SoftBank Group Corp.’s chip division Arm Ltd. for $40 billion, taking control of some of the most widely used electronics technology in the semiconductor industry’s largest-ever deal.

Nvidia will pay $21.5 billion in stock and $12 billion in cash for the U.K.-based chip designer, including a $2 billion payment at signing. SoftBank may receive an additional $5 billion in cash or stock if Arm’s performance meets certain targets, the companies said Sunday in a statement. An additional $1.5 billion will be paid to Arm employees in Nvidia stock.

SoftBank shares surged as much as 10% on news of the deal and renewed talks for the company going private.

The initial payment from Nvidia marks a small premium over the $31.4 billion that SoftBank paid to acquire Arm in 2016, previously the semiconductor industry’s biggest deal. The Japanese company is expected to own less than 10% of Nvidia following the transaction, according to the statement. Regulatory approval may take as long as 18 months before the transaction is completed and the deal needs sign-offs from U.K., China, European Union and U.S. authorities, the companies said. China’s approval may be particularly difficult given rising tensions with the U.S.

Related:A Huge Week for Arm – in the Data Center Too

“Now Arm will become a U.S. firm, and the conflict over semiconductors between the U.S. and China is becoming fierce as China still controls Arm China,” said Koji Hirai, head of M&A advisory firm Kachitas Corp. in Tokyo.

In comments after the deal announcement, Chief Executive Officer Jensen Huang said his team “fully expect to spend time with the regulatory bodies in China,” but have every confidence in getting approval for the takeover.

He also addressed concerns the deal will upset Arm’s relationships with customers including Apple Inc. Huang said he will preserve Arm’s neutral business model and wants to expand its client list. He argued Nvidia is spending a lot of money for the acquisition and has no incentive to do anything that would cause clients to walk away.

Nvidia said the U.K. company will “continue to operate its open-licensing model while maintaining the global customer neutrality that has been foundational to its success.” Nvidia will add its technology to the offerings licensed by Arm, the Santa Clara, California-based company said.

Under Huang, Nvidia has risen rapidly up the ranks of technology companies in market value and influence. Already the dominant force in graphics chips that make video games more realistic, Nvidia has carved out a slice of the market for data center chips and is moving into self-driving vehicles.

Related:How Cumulus Fits into Nvidia’s Data Center Play