The U.K. Is Considering Blocking Nvidia’s Takeover of Arm. Could It Really Happen?

The back story. Owned by Japanese investor SoftBank since 2016, Arm licenses intellectual property to the likes of Apple, Amazon, and Samsung, who use the chip designs in device processors globally. Nvidia’s purchase of the company, announced in September 2020, is a move to transform the global semiconductor landscape as the importance of chips has been underscored by a worldwide shortage.

But the deal has come under scrutiny in the U.K. since it was announced in September. British companies in fields from defense to semiconductors have recently become acquisition targets, and there is political pressure to protect national control of critical industries. For its part, Nvidia has pledged to keep Arm’s English headquarters in Cambridge and expand its research and development presence, among other commitments.

Also read: Nvidia’s $40 Billion Takeover of Arm Faces U.K. National Security Probe

What’s new. The U.K. Competition and Markets Authority was tasked in April with assessing concerns surrounding the deal, including potential competition issues as well as security concerns from third parties. 

Delivered in late July, the regulator’s report contains worrying implications for national security, and the U.K. is currently inclined to reject the takeover, Bloomberg News reported on Tuesday. At the very least, a deeper investigation into the merger on security issues is likely, the report said.

Nvidia, in response, has acknowledged that it is working through the deal with U.K. regulators and confirmed that it expects to resolve any issues.

Plus: U.K. to Propose Powers to Block London Listings on National Security Grounds

Looking ahead. Indications that the U.K. is leaning toward blocking the deal could be stress-inducing for Nvidia investors. And there is good reason for that, because acquiring Arm is pivotal for Nvidia to increase its dominance in the global chip industry.

Ultimately, the U.K. government is under a lot of pressure to give off a message that it won’t let its critical industries be owned by foreign investors. The country’s largest chip maker, Newport Wafer Fab, is the subject of an acquisition bid by Chinese-owned Nexperia, and just this week U.S. group Parker Hannifin agreed to buy British aerospace and defense engineer Meggitt. That is to say nothing of the wave of private-equity takeovers in sectors from retail (grocer Morrisons) to infrastructure (John Laing Group).

Will the U.K. really block one of these deals? Perhaps. Doing so would satisfy some of the domestic pressures and send a signal that all foreign takeovers won’t be greenlit. But making an example out of Nvidia might just be a bridge too far—$40 billion too far.

Write to Jack Denton at jack.denton@dowjones.com