KEY POINTS

  • SoftBank originally purchased Arm in September 2016 for $31 billion
  • At closing, SoftBank subsidiaries will hold between 6.7%-8.1% of Nvidia shares
  • SoftBank recorded an operating loss of $12.7 billion for the fiscal year ended Mar. 31

U.S.-based semiconductor giant Nvidia Corp. (NVDA) said on Sunday it entered into a definitive agreement to purchase the Arm Holdings Ltd. subsidiary of Japanese tech conglomerate SoftBank Group in a transaction valued at up to $40 billion.

The deal was heavily criticized in the U.K.

Based in Cambridge, U.K., Arm designs microprocessor intellectual property and related technology. Arm is well known for developing chips for mobile phones.

SoftBank originally purchased Arm in September 2016 for $31 billion. It said it expects the combination with Nvidia will create “the world’s leading computing company for the age of artificial intelligence, accelerating innovation while expanding into large, high-growth markets.”

SoftBank further described Nvidia as “the premier [artificial intelligence] computing company, and Arm, the world’s most pervasive computing platform.”

“Nvidia is the perfect partner for Arm,” said Masayoshi Son, chairman and CEO of SoftBank. “Since acquiring Arm, we have honored our commitments and invested heavily in people, technology and R&D, thereby expanding the business into new areas with high growth potential.”

SoftBank added it will remain a “significant strategic shareholder” in Nvidia.

Under terms of the agreement, $2 billion will be paid in cash to Arm at signing, and $10 billion in cash and $21.5 billion in Nvidia common shares will be paid to Softbank subsidiaries SoftBank Group Capital Ltd. and the SoftBank Vision Fund at closing. An earn-out of up to $5 billion is payable to SBGC and the Vision Fund subject to satisfaction of specific financial performance targets of Arm. An additional $1.5 billion in Nvidia stock awards will be granted to Arm employees.

At closing, the SoftBank subsidiaries are expected to hold between 6.7%-8.1% of Nvidia shares outstanding.

The proposed transaction, which is subject to regulatory approvals in the U.K., China, the European Union, and the U.S., is expected to close in about 18 months.

SoftBank likely needs the cash as it has suffered huge losses from some of its investments this year, particularly at office-sharing firm WeWork and Uber (UBER).

SoftBank recorded an operating loss of $12.7 billion for the fiscal year ended Mar. 31. (Although it bounced back with a $12 billion profit in the quarter ended in June).

But the proposed transaction has come under heavy criticism in the U.K.

The cofounder of Arm – which is regarded as the crown jewel of the British tech sector – criticized the sale.

Hermann Hauser told BBC on Monday: “I think it’s an absolute disaster for Cambridge, the U.K., and Europe.”

Hauser warned that thousands of Arm employees would lose their jobs in the British cities of Cambridge, Manchester, Belfast, and Warwick if Nvidia “inevitably” chose to relocate Arm’s headquarters to the U.S.

Hauser also said Nvidia would “destroy” Arm’s business model, since the company licenses chip designs to about 500 other companies – many of which compete directly with Nvidia.

“If Arm becomes a U.S. company, it falls under the [Committee on Foreign Investment in the U.S.] regulations,” he added. “If hundreds of U.K. companies that incorporate Arm’s [chips] in their products want to sell it or export it to anywhere in the world, including China, which is a major market, this decision on whether they’re allowed to export it will be made in the White House and not in Downing Street. I think this is terrible.”

Hauser has recommended that the U.K. government prohibit the transaction and instead help to take Arm public on the London Stock Exchange (which was a move SoftBank earlier planned to do).

Shadow Business Secretary Ed Miliband of the opposition Labour Party said: “The [British] government is doing nothing in the face of the risk of [Arm] being swallowed up by Nvidia.”

“Where we feel a takeover may represent a threat to the U.K., the government will not hesitate to investigate the matter further, which could lead to conditions on the deal,” said a spokesman for Downing Street.

Abishur Prakash, a geopolitical futurist at the Center for Innovating the Future, a strategy consulting firm based in Toronto, told International Business Times that the deal is part of a brewing tech war between the U.S. and Europe.

“Both sides are not seeing eye-to-eye on tech,” he said. “Nvidia’s acquisition of Arm will only heighten this as the U.K. -- and Europe -- lose one of the world’s most important chip firms.”

Prakash added that while SoftBank isn’t a chip company, Nvidia is.

“This means that Nvidia already has certain facilities and labs,” he stated. “It may not need the same footprint in Europe. This will affect what Nvidia needs from the U.K., from hiring to partnerships to real estate to investments.”

Also, by taking control of Arm, the U.S. is consolidating its control of the global chip market -- and taking aim at China.

“By acquiring Arm, the U.S. can increase pressure on Chinese firms who needs chips,” Prakash concluded.