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FTC blocks $40 billion Nvidia-ARM merger

In 2022, America’s Federal Trade Commission (FTC) blocked the proposed $40 billion merger between Nvidia, the AI chip powerhouse, and ARM, the Japanese-owned UK-based chip infrastructure company.

The merger was called off due to “significant regulatory challenges” after the FTC indicated it would oppose it because of fears the combined company could strangle innovation.

The FTC said the proposed vertical deal would give one of the largest chip companies control over the computing technology and designs that rival firms rely on to develop their own competing chips.

The commission claimed the combined firm would have the means and incentive to stifle innovative next-generation technologies, including those used to run data centers and driver-assistance systems in cars. AI chips were mentioned in passing by the FTC in its complaint.

Blocking that deal hasn’t hurt both companies. Since listing last September, Arm’s market value is up 140% to more than $150 billion, but Nvidia’s value has surged, almost tripling to a value of $1.98 trillion.

The FTC, in fact, did both companies (and their investors) a big favor by blocking that deal.

On Tuesday, Federal Trade Commission Chair Lina Khan told a New York conference that the decision was an example of how blocking mergers can lead to increased innovation. “The trajectories of both companies in the wake of this action have illustrated how organic growth and competition can spur firms to further innovate in ways that benefit the business and public alike,” Khan said at the conference, according to a report on CNBC.

The evidence, Khan said, is in the company stock prices.

“Not only has Nvidia remained the leading AI chipmaker in the AI chip arms race, with a surging stock valuation, but Arm ended up going public, and has a forward earnings multiple that is more than double Nvidia’s,” Khan said.

In fact, the opposition to the deal was greater than just the US, with regulators in Europe and Asia also resisting the bid, along with many of Arm’s customers such as Apple, Google, and Qualcomm.

Arm’s core technology, its instruction set architecture, is used by companies such as Apple to build processors. Arm is often described as a “neutral supplier” that doesn’t compete with its customers.

Those companies and regulators worried that Nvidia could control access to Arm’s architecture, giving it the power to foreclose access to a key input needed to make their chips. Nvidia said it would invest in Arm and allow other companies continued use of Arm’s chip designs, preserving the company’s licensing model.

“Our team determined that giving one of the largest chip companies control over the computing technology and designs that rival firms rely on to develop their own competing chips would be bad for competition and hamstring innovation of next-generation technology,” Khan said Tuesday.

But that assurance wasn’t enough, so the two companies called off the deal… and the rest is history and a stock market boom.