UK opens in-depth probe of Nvidia-ARM deal, citing national security and competition concerns

 UK opens in-depth probe of Nvidia-ARM deal, citing national security and competition concerns

Chipmaker Nvidia’s planned $40 billion purchase of U.K.-based chip designer ARM will face an in-depth probe by the U.K.’s competition regulator after the government ordered the Competition and Markets Authority (CMA) to take a closer look at the proposed transaction.

The U.K.’s digital secretary, Nadine Dorries, said today that she has written to the CMA instructing it to carry out a phase two investigation — citing competition and national security concerns.

Back in August, the government published details of the CMA’s preliminary probe which raised a number of competition concerns attached to the acquisition — saying it could lead to a “substantial lessening of competition” in markets for data centres, Internet of Things, the automotive sector and gaming applications.

The CMA’s phase one report, which recommended a deeper probe on competition grounds — but did not make a decision on the national security issue — has been published in full today.

Back in April, the government issued an intervention notice on national security grounds — asking the CMA to prepare a report on the implications of the transaction to help it decide whether a deeper probe is required.

Today Dorries said national security interests remain “relevant” — and “should be subject to further investigation”.

Under the Enterprise Act 2002, the digital secretary has statutory powers that allow her to make a quasi-judicial decision to intervene in mergers under a handful of public interest considerations, including for matters of national security.

Commenting in a statement, she said: “I have carefully considered the Competition and Market Authority’s ‘Phase One’ report into NVIDIA’s proposed takeover of Arm and have decided to ask them to undertake a further in-depth  ‘Phase Two’ investigation.

“Arm has a unique place in the global technology supply chain and we must make sure the implications of this transaction are fully considered. The CMA will now report to me on competition and national security grounds and provide advice on the next steps.

“The government’s commitment to our thriving tech sector is unwavering and we welcome foreign investment, but it is right that we fully consider the implications of this transaction”.

Nvidia has been contacted for comment on the phase two referral.

The CMA will have 24 weeks (with a possible eight-week extension) to conduct the phase two probe and report its findings to the government — meaning, at the very least, Nvidia’s acquisition of ARM faces months more delay before the transaction could be cleared.

The digital secretary will need to take a decision on whether to make an “adverse public interest finding” — in relation to the acquisition on national security and/or competition grounds — which, if she does make such a finding, could lead to the acquisition being blocked on public interest grounds.

A final decision on the national security issue lies with the U.K. secretary of state — who has 30 days after receiving the CMA’s final report to make the call.

If Dorries finds no adverse public interest grounds for intervention she would refer the case back to the CMA — which could still advise against it on competition grounds — and/or impose conditions in order to remedy concerns so it may go ahead.

So there are substantial barriers to clearance — with the potential for the acquisition to be blocked on both national security and competition grounds, or on one of either ground.

Although it could also ultimately be cleared on both grounds (albeit that seems unlikely on the competition front, given the CMA’s phase one probe raised significant concerns).

The deal could also be approved subject to remedies (aka conditions and/or restrictions intended to address specific concerns).

Growing concerns

Nvidia’s plan to buy ARM faced instant domestic opposition, with one of the original co-founders of the company starting a campaign to “save ARM” from being snapped up by the U.S. giant.

The global chip crunch has only likely heightened concerns about supply chain stability in the semiconductor arena (though ARM develops and licenses IP, rather than making chips itself). And the EU recently announced a plan to legislate with a Chips Act that’s intended to strengthen regional sovereignty around semiconductor supply.

The European Union is also examining the Nvidia-ARM deal directly — announcing its own in-depth investigation late last month and throwing up another road-block for the U.S. giant to scoop up the U.K. chip designer.

In a similar finding to the CMA’s phase one probe, the Commission said its preliminary analysis of the Nvidia-ARM deal raised a raft of competition concerns.

“The Commission is concerned that the merged entity would have the ability and incentive to restrict access by NVIDIA’s rivals to Arm’s technology and that the proposed transaction could lead to higher prices, less choice and reduced innovation in the semiconductor industry,” the EU’s executive wrote last month. “Whilst Arm and NVIDIA do not directly compete, Arm’s IP is an important input in products competing with those of NVIDIA, for example in datacentres, automotive and in Internet of Things,” added competition chief Margrethe Vestager in a statement.

“Our analysis shows that the acquisition of Arm by NVIDIA could lead to restricted or degraded access to Arm’s IP, with distortive effects in many markets where semiconductors are used. Our investigation aims to ensure that companies active in Europe continue having effective access to the technology that is necessary to produce state-of-the-art semiconductor products at competitive prices.”

The EU has until March 15, 2022 to decide whether or not to clear the acquisition. 

According to a Reuters report last month, the Commission was not swayed by concessions offered earlier by Nvidia as it sought to avoid an in-depth EU probe.

Related post