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UK intervenes in $40bn Nvidia-Arm deal on national security grounds

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Hannah Boland
·3-min read
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Arm - SAM YEH/AFP
Arm - SAM YEH/AFP

The $40bn (£28.6bn) US takeover of the microchip designer Arm Holdings faces an official investigation over fears it could compromise Britain’s national security.

The culture secretary, Oliver Dowden, issued a rare notice intervening in the acquisition by Nvidia, a semiconductor maker based in Silicon Valley, California.

The move, made under powers designed to protect the public interest and after Mr Dowden considered advice “received from officials across the investment security community”, triggers an investigation by the Competition and Markets Authority (CMA).

The mergers watchdog will consider whether the combination of Arm and Nvidia could undermine national security. It is understood the concerns centre on the use of Arm’s technology in critical infrastructure in the UK as well as being used by aerospace and defence suppliers operating in Britain.

Arm’s designs are used in everything from WiFi hubs to missiles and torpedoes. Insiders suggest that ministers are keen to ensure that use of the technology, embedded in the UK, is not dictated by US officials or regulators.

Mr Dowden said: “We want to support our thriving UK tech industry and welcome foreign investment, but it is appropriate that we properly consider the national security implications of a transaction like this.”

His intervention marks a contrast with the previous takeover of Arm, then a FTSE 100 company, in 2016. It was taken private by Softbank, the Japanese technology investor, in the months after the Brexit referendum in a deal that was quickly waved through.

However, as part of the Softbank takeover, Arm remained under significant UK influence. Nvidia’s ownership could bring it under the control of powerful US national security laws that could one day be used against Britain’s interests, City sources said.

The CMA has until the end of July to complete its “phase one” investigation. Mr Dowden will then decide whether to refer the deal to more detailed “phase two” scrutiny.

It is possible that Nvidia will agree concessions to alleviate any concerns identified in phase one and avoid the need for an extended investigation. These may include shielding parts of Arm’s business from American influence. However, the deal could be blocked if no solution can be found.

Some Nvidia rivals who depend on equitable access to Arm designs fear the takeover will harm their businesses.

Sir Hossein Yassaie, a semiconductor veteran and former chief executive of rival chip designer Imagination Technologies, said: “The real issue is why should we lose a huge asset which everyone depends on.”

Companies including Tesla and Qualcomm are concerned that with ownership of Arm, Nvidia could be given an unfair advantage or raise prices, a suggestion it has rejected.

The transaction is also under scrutiny in the US, where the Federal Trade Commission is focused on such competition concerns. The CMA has been conducting preliminary work for its investigation, including liaising with foreign counterparts.

Nvidia, which agreed terms with Softbank in September, has said it hopes to complete the takeover early in 2022.

A Nvidia spokesman said: “We do not believe that this transaction poses any material national security issues. We will continue to work closely with the British authorities, as we have done since the announcement of this deal.”