On September 13, 2020, Nvidia Corporation (NASDAQ: NVDA) and SoftBank Group Corporation (OTCMKTS: SFTBY) jointly announced that the former would acquire Arm Limited for a $40 billion deal. However, with regulatory approval from different jurisdictions including China, the deal is likely to face strong opposition from the Chinese government.
Sebastian Hou, managing director and head of technology research at CLSA, said:
“We think that China will pose the biggest challenge (in terms of regulatory hurdles)”.
The primary focus for the Nvidia-Arm deal is the fact that an American company is acquiring the globally recognized tech company, hence putting China at the direct hands of Americans. He added:
“If it’s going to be owned by American company Nvidia, then that will give more ability for the USA government to sanction, to control the technology access of China”.
With the United States based companies acquiring overseas tech companies at an unprecedented rate, China is expected to hit back. This is solely based on the fact that both countries are fighting to hold the number one position in the global economic hub and also tech sector leader.
Sebastian Hou said, adding that many tech companies in China depend on Arm:
“That would become the biggest nightmare for the Chinese government”.
It’s worth mentioning that Nvidia shares closed yesterday up 1.85% to trade at $493.92. Notably, they had managed to add 187.56% in the past one year through September 24. In addition, Nvidia stock was up 109.91% year to date through Thursday. In the past three months, NVDA was up 34.88%, however, it had dropped 6.08% in the past one month, and is now up 1.30% in the past five days through Thursday according to MarketWatch.
Nvidia-Arm Deal Bigger Picture
Arm’s energy-efficient processor designs have enabled intelligent computing in 180 billion chips globally. In addition, its technologies now securely power products from the sensor to the smartphone and the supercomputer.
This makes its acquisition a great deal for the Americans in the race for leading the technology industry against China.
According to the joint statement, Nvidia is supposed to pay SoftBank a total of $21.5 billion in its common stock and $12 billion in cash, which includes $2 billion payable at signing. Notably, the total number of NVDA shares to be issued at closing is 44.3 million, determined using the average closing price of Nvidia common stock for the last 30 trading days as of the time of the agreement. Additionally, SoftBank may receive up to $5 billion in cash or common stock under an earn-out construct, subject to satisfaction of specific financial performance targets by Arm.