UK Digital Secretary Oliver Dowden Starts National Security Probe Into Proposed Arm-Nvidia Merger

The proposed sale of Arm to Nvidia looks a bit more tenuous today after UK digital secretary Oliver Dowden issued a Public Interest Intervention Notice (PIIN) indicating he may intervene in the sale on national security grounds.

The disptach of the PIIN has kicked-off a further degree of scrutiny, with the Competition and Markets Authority (CMA) instructed to include any potential national security concerns in its upcoming report on the merger. These would be obtained via consultation with relevant third parties, and come as an addition to its existing focus on jurisdictional and competition issues.

Depending on the outcome of the review, Dowden can choose to clear the transaction, impose certain conditions, or refer the it to a more intensive “phase two” investigation.

The CMA has a deadline of 30 July, 2021 to complete its report. Dowden has no set time limits to deliberate, although must render a decision as soon as possible in order to reduce market uncertainty.

Should the CMA undertake a phase two investigation, Dowden would be empowered to take action to prevent or mitigate any impacts of the merger that would be detrimental to the public interest.

In a statement, the digital secretary said: “Following careful consideration of the proposed takeover of Arm, I have today issued an intervention notice on national security grounds. As a next step and to help me gather the relevant information, the UK’s independent competition authority will now prepare a report on the implications of the transaction, which will help inform any further decisions.”

Nvidia shares dropped 4 per cent from $636.50 to $612.59 at the time of the announcement but had recovered to $617.86 at the time of publication.

“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,” Dowden added.

Nvidia announced its intent to acquire Arm from SoftBank last September. The proposed deal was valued at $40bn, made up largely of $12bn in cash and $21.5bn in Nvidia shares. The company also offered $1.5bn in equity to existing Arm employees, and $5bn to Softbank should the company meet specific performance targets.

In order for the deal to close, Nvidia must satisfy regulators in the US, China, and the UK.

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The proposed acquisition has met fierce pushback from some in the industry, who fear Arm may dilute its existing licensing-based business model, or modify it in order to kneecap rival chipmakers that rely on the company's designs. Among the companies known to have objected during the FTC's investigation are Qualcomm, Google, and Microsoft.

Nvidia has, for the most part, attempted to assuage the fears of its rivals. Upon first announcing the planned acquisition, Nvidia CEO Jensen Huang penned an open letter describing ARM’s business model as “brilliant.”

“We will maintain its open-licensing model and customer neutrality, serving customers in any industry, across the world, and further expand Arm’s IP licensing portfolio with Nvidia’s world-leading GPU and AI technology,” he said at the time.

In March, Nvidia’s CFO Colette Kress reiterated these sentiments. Speaking at the Raymond James Institutional Investors Brokers Call, the company exec sounded almost Trumpesque:

“We love their licensing model. Their open licensing model is absolutely one of the greatest licensing models out there. Our ability to take some of our technology and license through their open model is absolutely one of the great things that we can do with the overall Arm acquisition.”

The Register has asked Arm for comment.

In a statement, Nvidia 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." ®