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.