Watchdog expresses ‘concerns’ over Nvidia’s takeover of UK chip designer Arm

CMA investigation comes amid a slew of buyouts seen as a threat to UK’s economy and national security

Last modified on Fri 20 Aug 2021 13.28 EDT

The UK competition watchdog has found the takeover of Cambridge-based chip designer Arm by US rival Nvidia raises serious competition concerns, and has launched an in-depth investigation into the $40bn (£29.5bn) deal.

The Competition and Markets Authority (CMA) said the controversial deal could reduce competition in markets reliant on semiconductor chips, which act as the “brain” in all electronic devices, pushing up prices of products from cars and games consoles to mobile phones and data centres.

The investigation comes amid concerns about the threat to Britain’s economy and national security from a string of recent takeovers of UK companies by foreign rivals and private equity firms.

The behavioural remedy offered by Nvidia – in effect a guarantee from the company not to engage in anti-competitive practices – was rejected, with the regulator saying it “does not believe any form of behavioural remedy would address the competition concerns identified”.

This raises the real prospect that the deal, which is also being assessed for investigation on national security grounds by Oliver Dowden, who heads the department for digital, culture, media and sport, could be blocked.

“We’re concerned that Nvidia controlling Arm could create real problems for Nvidia’s rivals by limiting their access to key technologies, and ultimately stifling innovation across a number of important and growing markets,” said Andrea Coscelli, chief executive of the CMA. “This could end up with consumers missing out on new products, or prices going up.”

A spokesperson for Dowden’s department said a copy of the CMA phase one report had been received and that the “digital secretary will make a decision on whether to proceed to the next phase of the investigation in due course”.

Earlier this week the business minister, Kwasi Kwarteng, told the CMA to investigate the £2.6bn takeover of British defence firm Ultra Electronics by rival aerospace firm Cobham, which is owned by US private equity company Advent.

Kwarteng ordered the investigation saying “the UK is open for business, however foreign investment must not threaten our national security”.

Last month, Boris Johnson was forced to step in to review the purchase of the UK’s largest producer of semiconductors by a Chinese-owned manufacturer, after being criticised for waving the deal through after the Welsh secretary said he was “satisfied” that security risks had been taken into account.

The government moved to investigate the sale of Newport Wafer Fab to Chinese-owned manufacturer Nexperia using powers under the new National Security and Investment Act, which was brought in to protect key national assets from foreign takeover.

Other major deals for British companies in the offing include a £7bn bidding war for supermarket group Morrisons, Coventry-based defence supplier Meggitt, which is being pursued by two US aerospace companies and asthma inhaler maker Vectura, which is subject to a £1.1bn offer from tobacco company Philip Morris International.

“Several deals have lately caught the attention [of regulators and government] and there is a sense of there being a raid on top British companies,” said Neil Wilson, chief market analyst at “Tory governments don’t like to be too interventionist, but they also don’t like to appear asleep at the wheel when blue chips get hoovered up.”

The takeover of Arm is of particular concern as an increasingly severe global shortage of semiconductor chips has disrupted the manufacture of a swathe of goods from mobile phones to cars, making control of companies in the sector a geopolitical issue.

“The chip technology industry is worth billions and is vital to products that businesses and consumers rely on every day,” said Coscelli. “This includes the critical data processing and data centre technology that supports digital businesses across the economy, and the future development of artificial intelligence technologies that will be important to growth industries like robotics and self-driving cars.”

Arm Holdings, which employs 6,500 staff including 3,000 in the UK, is a global leader in designing chips for smartphones, computers and tablets. Nvidia is one of more than 500 users of Arm’s designs worldwide – which include Apple, Samsung and Qualcomm – and critics have said its takeover will ruin its status as the “Switzerland” of the semiconductor industry.

“We look forward to the opportunity to address the CMA’s initial views and resolve any concerns the government may have,” a spokesperson for Nvidia said. “We remain confident that this transaction will be beneficial to Arm, its licensees, competition and the UK.”

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