14 September 2020

Nvidia Confirms Biggest Deal in Semiconductor History

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News shaping
the markets today

     

What’s happening: Nvidia has confirmed plans to buy UK-based chip designer Arm Holdings from SoftBank Group for as much as $40 billion.

What happened: The deal is the largest acquisition on record for the semiconductor industry and comes on the heels of the recent acquisition of Maxim Integrated by Analog Devices for $22 billion.

The latest deal represents a massive victory for SoftBank, providing cash to the company at a time of severe crunch, after a string of losses.

Why it matters: SoftBank had purchased British chip technology firm Arm Holdings for $32 billion in 2016.

Nvidia will be paying $2 billion in cash to SoftBank immediately on signing the deal, followed by $21.5 billion in stock and cash worth $12 billion at the time of deal closing. The Japanese company could receive another $5 billion in cash or stock depending on business performance.

Nvidia is looking to finance the cash portion of the deal with the cash on its balance sheet to acquire all groups under the Arm Holdings umbrella, with the exception of its IoT (Internet of Things) Services Group.

The transaction will see SoftBank returning as a major investor in Nvidia. The Japan-based company had earlier held a 4.9% stake in the semiconductor company, which it sold in 2019.

The closing of the transaction is likely to occur in one and a half years, subject to various regulatory and antitrust approvals from the US, the European Union, Britain and China.

The deal will give SoftBank much needed liquidity. The Japanese company has been constrained for cash during the pandemic and CEO Masayoshi Son has been reducing his stake in major assets to raise funds.

Nvidia is already the biggest US chip company by market cap and the Arm Holdings purchase will consolidates its position to create a formidable entity in the space.

How shares responded: As the latest deal was announced on Sunday, the impact on Nvidia’s shares will be seen in today’s trading. The stock slipped 1.2% to close at $486.58 on Friday, only to lose another 0.3% in after-hours trading. SoftBank’s shares gained around 10% during the Japanese session this morning.

What to watch: Investors will keep an eye on news related to shareholder and regulatory approvals related to the Arm Holdings deal, which is expected to reshape the semiconductor industry. SoftBank’s shareholders will look out for the company’s plans to use the cash.

The Markets Today

     

Gold will be in focus today, after the yellow metal closed higher last week.

Context: Gold futures edged lower on Friday, but still closed the week with gains amid a volatile week for global equities.

Details: Concerns over soaring stock valuations in the technology sector pushed the Nasdaq 100 into correction territory last week, following a strong rally in the previous weeks.

Although gold had delivered strong gains as investors increased safe-haven assets in their portfolio amid the pandemic, it pared its gains over the past few weeks. The recent volatility in the equity markets again provided support to the yellow metal.

Uncertainties surrounding the US presidential elections in November, along with rising geopolitical tensions, are also serving as catalysts for gold.

December gold slipped 0.8% to close at $1,947.90 an ounce on Friday, after gaining 0.5% in the prior session. Meanwhile, December silver fell 1.6% to settle at $26.857 an ounce on Friday. For the week, the yellow metal recorded a 0.7% gain, while the white metal rose 0.5%.

October platinum fell around 0.2% to $939.60 an ounce on Friday, but recorded gains of 4.6% for the week. December palladium slipped slightly to $2,330.80 an ounce in the prior session, falling 0.5% last week.

What to watch: Gold futures rose by 0.5% to $1,958 during the Asian session and could continue its upward momentum if the global stock markets remain volatile today. Investors will also keep monitor the rising geopolitical tensions.

Other Markets: US indices trading closed mixed on Friday, with the Dow Jones index and S&P 500 up by 0.48% and 0.05%, respectively, and the Nasdaq 100 losing 0.6%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Turkey's industrial production and retail sales, Eurozone's industrial production, South Africa's SACCI business confidence index, Brazil’s IBC-Br index of economic activity as well as the US consumer inflation expectations.

 

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