CMA ready to torpedo Nvidia’s takeover of Arm

Equities

The CMA looks like it might torpedo Nvidia’s attempted takeover of Arm. The Competition and Markets Authority found that the US company’s $40bn purchase of SoftBank-owned Arm raises “serious competition concerns”. The CMA is progressing to a detailed Phase 2 investigation and I think this means the deal is in serious trouble. The CMA itself cites grave competition concerns – notably the fact that Arm’s tech is used by various chipmakers in competition with Nvidia. The regulator said that it “is concerned this loss of competition could stifle innovation across a number of markets, including data centres, gaming, the ‘internet of things’, and self-driving cars”. Less competition could drive up prices for consumers.

But we also know there are national security concerns, too, and a public interest test is already being applied to the deal.  Secretary of state Oliver Dowden will decide whether the merger should be referred for an in-depth Phase 2 investigation on both competition and national security grounds, or if it should be passed back to the CMA to investigate on competition grounds only. Either should be enough to block you feel. It would be great to see Arm shares trade on the FTSE.

What is unclear is the extent to which this signals unease in Whitehall about UK plc being on sale. The CMA is only reviewing from a competition point of view at present. That alone may be enough to scupper Nvidia’s advances. But several deals have lately caught the attention and there is a sense of there being a raid on top British companies. Tory governments don’t like to be too interventionist – Britain is open for business and all that – but they also don’t like to appear asleep at the wheel when blue chips get hoovered up. Whether it’s Morrisons, Vectura Meggitt or Ultra Electronics, the raiders seem to be picking up assets on the cheap. Does the CMA’s escalation tell us something is afoot in Whitehall to stop them? Maybe, but the CMA has only a narrow competition mandate at this point. But we do know the Ultra Electronics deal with US private equity-owned Cobham is being investigated, too. Advent has already sold off a good chunk of the old Cobham – why should Ultra be fed to the wolves as well? Hopefully the government is starting to show a bit more backbone.

$NVDA rallied 2% the open as US equity markets opened flat.