UK weighs national security concerns over Nvidia’s $40bn move for Arm
Ministers consider grounds for rejecting deal following competition authority report
The future of Nvidia’s planned $40bn takeover of Arm, the British chip designer, is being considered by Boris Johnson’s government as UK ministers take an increasingly active interest in such deals.
Oliver Dowden, UK digital secretary, received an initial report from Britain’s competition authority on July 20. His office said he would make a decision “on the next phase of the investigation in due course”.
Bloomberg News cited a person familiar with government discussions as saying that the assessment by the Competition and Markets Authority contained worrying implications for national security and that the UK was currently inclined to reject the takeover.
The CMA does not undertake its own national security assessment in such reports but rather passes on third-party concerns. The watchdog did assess the deal on competition grounds, however, which the government is also considering.
Dowden’s spokesman on Tuesday declined to discuss the minister’s current view on the deal but said he wanted to see a decision taken “as soon as reasonably practicable to reduce uncertainty” on next steps.
Dowden must next decide whether to let the deal proceed, possibly with conditions attached regarding new undertakings from Nvidia. Even if the government decided there were no national security issues, the CMA could still launch a more detailed “phase 2” probe based on any competition concerns.
In the event that the government uncovers no public interest issues, but the CMA has uncovered competition concerns that cannot be remedied without an in-depth probe, the case would be handed back to the watchdog to handle as a phase 2 merger case.
Johnson’s government has become ever more concerned at the number of takeover bids for strategic British companies. Even Thatcherite ministers such as Kwasi Kwarteng, business secretary, are said by government officials to be “worried”.
Kwarteng has in a handful of days taken an “active interest” in two US bids to buy British defence groups amid worries over national security and the impact on UK jobs, investment and skills.
Johnson’s government is committed to defending manufacturing in key sectors, while the Covid-19 pandemic and Brexit — with its disruption of European supply chains — have focused ministers’ attention on the need to develop domestic capacity in critical sectors.
In the case of Nvidia’s bid for Arm, the deal has raised potential security concerns because semiconductors underpin defence-related technologies. Arm declined to comment.
Dowden said in April: “We want to support our thriving UK tech sector and welcome foreign investment, but it is appropriate that we properly consider the national security implications of a transaction like this.”
Arm is being sold by SoftBank of Japan, which initially bought the semiconductor business in 2016. SoftBank’s decision to sell the group to Nvidia has raised concerns over whether the US group would keep its headquarters in Cambridge beyond the short term.
Jensen Huang, chief executive of Nvidia, has said he intends to retain Arm’s name while also expanding its base in Cambridge and keeping its intellectual property registered in the UK.
Nvidia said: “We continue to work through the regulatory process with the UK government. We look forward to their questions and expect to resolve any issues they may have.”
The CMA said: “As confirmed on July 20, we have submitted our findings on competition issues, and a summary of the responses we received on national security grounds, to the DCMS secretary of state.”
Meanwhile, Kwarteng is monitoring the proposed £7.1bn takeover of UK aerospace and defence company Meggitt by US rival Parker Hannifin.
The minister wants to retain jobs, R&D and other specialist operations in the UK. The jobs-related commitments made by Parker last for one year, while those around R&D spending are valid for five years.
Aerospace and defence analysts were confident that the Parker Hannifin takeover of Meggitt would go through despite the potential risk of government intervention.
Only a few days earlier Kwarteng signalled that he might intervene in the proposed £2.6bn bid by US private equity-backed Cobham for UK defence group Ultra Electronics after worries surfaced on national security grounds.
Under the 2002 Enterprise Act, ministers can intervene in takeovers deemed to threaten national security, media plurality or financial stability. A new National Security and Investment Act, with new powers, comes into force in January 2022.