FTC sues to block Nvidia’s proposed $16 billion acquisition of Arm Holdings

By Celine Aswad and Michelle Fay Cortez, The New York Times The Federal Trade Commission on Monday sued to block a proposed $16 billion deal by Nvidia Corp. to buy a British company. The…

FTC sues to block Nvidia’s proposed $16 billion acquisition of Arm Holdings

By Celine Aswad and Michelle Fay Cortez, The New York Times

The Federal Trade Commission on Monday sued to block a proposed $16 billion deal by Nvidia Corp. to buy a British company.

The proposed acquisition would create a powerful supplier of processors and software to the data centers that produce cloud-based computing applications. But the bureau argued that the deal would reduce competition and stifle innovation, citing a previous complaint that Arm Holdings, the British company, filed against Nvidia, accusing it of monopolizing the graphics chip market.

But Nvidia said it planned to defend itself vigorously against the complaint.

Nvidia’s shares dropped 3.2 percent, to $127.29, after the company announced the lawsuit. Arm’s stock also declined, to $4.35, after news of the transaction was first reported.

Under the proposed deal, announced in May, Nvidia would buy Arm for 1.4 billion pounds in cash, with additional payments based on performance targets over time. The companies plan to combine their embedded processing units and have said they expect to save costs by combining their operations.

The deal comes as data centers have become key market players, in part because cloud providers have been relying on servers, switches and other equipment from a variety of manufacturers to help meet the demands of online shopping and cloud computing.

Analyst Kennen MacKay, managing director at research firm Gartner, said in a statement that combining Arm and Nvidia’s capabilities would “create an immense and potent platform for the cloud sector.”

But Bryan Lewis, an analyst at brokerage firm Compass Point, said in a research note that the deal could be challenged by antitrust regulators in the United States, Europe and Japan.

The deal is also subject to review by Arm’s shareholders, who are scheduled to vote on the deal Sept. 17.

But in court papers, the FTC said it had found “strong evidence” of the deal’s anti-competitive effects because it was believed to create a duopoly that could force manufacturers to buy chips from the sole provider to ensure that they were certified and meet user requirements.

The FTC, in a complaint filed in District Court in Washington, also said the agreement would give the combined company unfair advantages in licensing agreements and product development.

Ralf Wilbert, an Nvidia spokesman, said the company planned to defend itself vigorously against the complaint. He said that Nvidia was “working with ARM to complete the transaction.”

But in an interview, Wilbert added that there was currently an “unwillingness of ARM’s shareholders to approve the deal.”

Ian Pearson, the chief executive of Arm, said in a statement: “Arm believes that the transaction is in the best interests of the company’s shareholders, employees and customers. We remain confident in the outcome.”

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