Microsoft's Acquisition Deal with Nvidia is Nothing New
Information Week on late Friday afternoon posted about a deal between Microsoft and Nvidia that would give the Redmond software maker first dibs on acquiring Nvidia if a third party offers to buy the graphics chip maker for 30 percent or more of its outstanding shares. The deal, which Information Week quoted in a recent SEC filing dated May 27th, gives Microsoft the exclusive right to match such offers, and/or essentially veto attempts by its rivals to acquire Nvidia. That's an interesting position for Microsoft to be in, though hardly a new one.
Missing from Information Week's quote of the "Risk Factors" section of Nvidia's most recent 10K filing with the U.S. Securities and Exchange Commission is the date in which this agreement was first made. Here's the expanded quote:
"On March 5, 2000, we entered into an agreement with Microsoft in which we agreed to develop and sell graphics chips and to license certain technology to Microsoft and its licensees for use in the Xbox. Under the agreement, if an individual or corporation makes an offer to purchase shares equal to or greater than 30 percent of the outstanding shares of our common stock, Microsoft may have first and last rights of refusal to purchase the stock. The Microsoft provision and the other factors listed above could also delay or prevent a change in control of Nvidia."
Figuring the date must be a typo (being an "exclusive" discovery and all), All Things D got in touch with Nvidia, who said that the arrangement with Microsoft is not a new one and has been disclosed in every quarterly filing since the deal was struck. All Things D confirmed as much when it dug through filings from prior years, going all the way back to 2000.
"So for whatever reason Information Week has decided to call attention to an 11-year old arrangement... Having been disclosed something like 55 times (five times a year give or take over 11 years), it's obviously not news to anyone who routinely does read them, such as analysts, investors, and pretty much anyone who pays reasonably close attention to Nvidia," All Things D said.
As Information Week itself points out, "the obscure pact is more than a decade old, but is apparently still in effect," that latter point being the reason they're calling attention to an agreement first formed more than a decade ago. The circumstances surrounding the deal is that back in 2000, Microsoft handed Nvidia "$200 million as an advance against graphics chip purchases and licensing the Company's technology." The cash infusion was to be used to develop a chip for what would become the Xbox. This was back when Nvidia was still a relatively small company with about $375 million in annual sales, and before the infamous takeover of 3dfx. Things are obviously much different now.
And so there you have it -- if you're afraid of what would happen to the graphics market should Microsoft acquire Nvidia, you can exhale knowing there's no impending deal in place. There is, however, an 11-year old agreement that still applies today, and is perhaps more interesting than ever when you consider the current state of the market, and specifically the push into tablet and smartphone graphics, both of which are areas Microsoft wants to play a bigger role. It would also be an expensive proposition for Microsoft, should Nvidia ever be presented with a buyout offer.