By: Bridget Visconti
While Americans for Tax Reform and Digital Liberty believe that companies should be able to merge or divest without government interference, the Federal Trade Commission (FTC) and the various antitrust laws already in place that Democrats say aren’t doing anything, are doing plenty.
Concerns about the Nvidia Corp. acquisition of Arm Ltd. from Softbank for $40 billion seems to be the issue uniting international antitrust regulators. The United States (US), United Kingdom (UK), European Union (EU), and China have all released statements that they are evaluating the acquisition and what it would mean for the semiconductor industry in each of their respective countries. If the deal goes through, it would create the largest chip company in the western world in terms of market value and overall global reach. Nvidia, Arm, and Softbank remain confident that the acquisition will be approved.
In February, Bloomberg broke the story that the FTC was launching an investigation into the acquisition of Arm by Nvidia. Several US companies such as Qualcomm, Google, and Microsoft have expressed concern to regulators that it could have negative implications on competition in the semiconductor industry. They specifically cite that it could change how Arm licenses out its technology which would impact chip manufacturing worldwide. Nvidia CEO Jensen Huang has made statements to the press affirming that acquisition of Arm would not change the current licensing model.
Typically, vertical merger’s, like that of Nvidia and Arm, are seen as less problematic by antitrust enforcers because the companies don’t compete head-to-head even though they are part of the same supply chain. Vertical mergers are often seen as good for consumers, because they create efficiencies within the supply chain that reduce end costs. But current regulators are more interested in protecting competitors than competition, which in the long run raises costs to consumers. This means a merger like Nvidia-Arm may have more obstacles in the US than initially expected, especially since Democrat commissioners at the FTC have said, previous merger guidelines issued by the FTC can no longer be relied upon.
The UK cited national security concerns over the deal and launched a formal investigation in late April. The investigation will conclude by July 30, 2021 with a report by the Competition and Market Authority to the Secretary of State, who will make the final decision. National security is tough concern to overcome; once national security is at issue, often little information as to why the merger will be blocked is provided because of “national security.” However, the UK says it is classifying the acquisition as a national security issue because much of their critical infrastructure requires chips, and thus a change in the world chip supply could be harmful to their security.
There is also concern amongst members of British Parliament that the acquisition would cost the UK jobs should Nvidia choose to relocate the Arm headquarters. Others also expressed concerns that it would lead to the US having a monopoly over the world’s chips.
The EU has also started its own investigation into the deal regarding the impact it would have on competition in the industry. Like in the US, it is expected that they will hear concerns from various companies that rely on the open licensing from Arm for their chip manufacturing.
China might be the biggest hurdle for the deal to clear as China’s Ministry of Commerce and their State Administration for Market Regulation became involved. While China’s exact concerns regarding the deal have not been made public, experts believe that they are worried about the US having strong influence over Arm, and that the acquisition will change their access to Arm’s intellectual property. Others speculate that blocking the sale might be used as a retaliatory measure over the US treatment of Huawei and the implementation of tariffs, proving that the US is not the only country politicizing antitrust laws.
In the past, China has blocked other deals where a US company tried to buy a European one, for example, Qualcomm’s attempted acquisition of NXP, a Dutch chipmaker.
Nvidia is a US-based technology company that designs graphic processing units (GPUs) and major components for CPUs in mobile devices and automobiles. Arm is one of the major architects for chip and software design in the world and is based in the UK. In the fourth quarter of 2020, Arm was responsible for shipping 6.7 billion chips which amounts to more than 800 chips a second. Arm’s “energy-efficient chip architectures are used in 95% of world’s smartphones and 95% of the chips designed in China.” We can see form the above account that countries have all kinds of reasons for inserting themselves into a merger or acquisition and use the guise of antitrust to do so, such as national security, national corporate champions, intellectual property transfer and the like. Regardless of the motive, the US, EU, China, and the UK all have to approve the deal for it to be successful, showing there is no dearth of active antitrust enforcement.
Photo Credit: Delfi de la Rua