NVIDIA Might Break Off Its $40B Arm Deal But That Would Be A Costly Move

NVIDIA Endeavor Building
It was always a possibility that NVIDIA's proposed deal to acquire Arm from Softbank for $40 billion would not pass regulatory scrutiny and ultimately fall through, and that now seems increasingly likely, according to what Bloomberg is hearing from people who are supposedly familiar with the matter. If that's the case, NVIDIA will be out $2 billion with very little show for it.

As part of the agreement, NVIDIA paid $2 billion in cash at signing, including a $1.25 billion breakup fee that Softbank is entitled to keep whether the deal goes through or not. The rest of the signing fee went to Arm for "licensing consideration," according to NVIDIA's filing with the US Securities and Exchange Commission (SEC).

While NVIDIA can afford to absorb a $1.25 billion hit, it would obviously prefer not to. Back in April of last year, NVIDIA CEO Jensen Huang expressed confidence that "regulators will see the wisdom" of the deal and that it would get done in 2022. And it still might—publicly, NVIDIA and Softbank still have not said anything to indicate the deal will fall through.

Privately, however, one of those aforementioned sources claims NVIDIA told its partners it no longer expects the deal to close. Additionally, it's said Softbank is preparing for an Arm initial public offering (IPO) if the buyout doesn't happen.

"We continue to hold the views expressed in detail in our latest regulatory filings—that this transaction provides an opportunity to accelerate Arm and boost competition and innovation," NVIDIA spokesman Bob Sherbin said. Likewise, a Softbank spokesperson told the site the company remains "hopeful that the transaction will be approved."

NVIDIA's deal to acquire Arm has been met with criticism with certain competing firms since it was announced in 2020. For example, Qualcomm raised concerns that if NVIDIA becomes the gatekeeper of Arm's IP, it could prevent other companies from using its technologies. To help assuage fears, it was reported that NVIDIA offered certain concessions to the European Union, in hopes of gaining regulatory approval in Europe.

The prospect of NVIDIA possibly abandoning the Arm deal sent shares of the company down a few percentage points in pre-market trading on Tuesday.