NVIDIA and SoftBank Scotch Arm Deal

After a long struggle to make it work, NVIDIA (Nasdaq: NVDA) and SoftBank Group Corp. have finally abandoned NVIDIA’s plan to acquire Arm Ltd. from SoftBank in a deal that was expected to top $50 billion. Instead, Arm, which has a new CEO, will be taken public by SoftBank within the fiscal year ending March 31, 2023.

NVIDIA will relinquish $1.25 billion in a deposit paid to SoftBank as part of the dismantling of the deal.

No Surprise

The move was pretty much anticipated. By the middle of 2021, it was apparent that the disapproval of regulators and customers worldwide, particularly in China and the U.K., where Arm Ltd. has its headquarters, were poking pins in the balloon of NVIDIA and SoftBank’s hopes. Firms such as Alphabet (Nasdaq: GOOGL), Apple (Nasdaq: AAPL), Qualcomm (Nasdaq: QCOM), and Samsung, also opposed the sale, especially since Arm own most of the mobile chip designs used by these companies.

Qualcomm is particularly committed to Arm designs, and management has stated that if SoftBank opted for an Arm IPO, Qualcomm and other big Arm customers would look to invest in it.

New CEO Challenged in China

Shortly after NVIDIA and SoftBank announced the dissolution of their deal, Arm announced that Rene Haas, president of Arm’s IP Product Group since 2017, will take the helm as CEO and chairman of the board, replacing Simon Segars.

Haas faces a few tough challenges. Not only must he prepare the company to meet IPO expectations, he must resolve a longstanding set of issues in China. Arm’s China operation answers to the company’s U.K.-headquartered management. But it is 51% owned by China’s Hopu Investments equity firm. This situation has made it difficult for Arm HQ to exercise control over its Asian subsidiary, especially as trade issues between China and the West heat up.

Rene Haas, CEO of Arm Ltd. Source: Arm

Indeed, the future of Arm China could be difficult to predict, especially if the IPO takes place in New York, as anticipated. That could constrain Arm China’s ability to trade with U.S. companies, given the ongoing additions to the U.S. Department of Commerce’s Entity List of companies whose dealings go contrary to U.S. interests. Presently, companies such as China’s Huawei have starring roles on that list.

Another conundrum for Haas is Arm China’s chief executive, Allen Wu, who has been called out and fired by Arm China’s board, but who refuses to leave on the grounds that he doesn’t have to answer to a foreign entity. Meanwhile, Arm HQ continues to question payments made to executives of Arm China as well as employee firings under Wu’s watch.

It’s not hard to imagine a deal in which SoftBank cedes ownerships of its China subsidiary to a Chinese company. But Arm would resist that move, given its reliance on the China market.

“Now that the Nvidia acquisition has been dropped, it gives us a little bit of clear air to resolve that situation,” CEO Haas recently told Fortune. “We will get a result because China is a very important market.”

Many questions swirl around Arm’s ability to hold its own in China, particularly as a public company with U.S ties. That said, it’s also feasible that a new CEO and the promise of substantial riches via IPO could lure Arm China back into the Arm fold.