US takeover of UK tech king Arm Holdings creates awkward problem for the government

Tech giant Nvidia’s public wooing of Softbank with the aim of winning the hand of Britain’s Arm Holdings has finally found success.

Courtesy of a $40bn (£31bn) dowry in cash and shares, the pair are on their way up the aisle.

But will the British government cry foul when the vicar asks if anyone knows of any lawful reason why the marriage shouldn’t go ahead?

That’s where it gets interesting.

Arm’s sale to SoftBank was waved through by the former business secretary Greg Clarke with only minimal conditions. A pledge to keep the company headquartered in Cambridge, for example, comes to an end next year.

One of the lines that did the rounds at the time was that the deal was somehow “good for Britain” because it proved we could attract “ investment” into the country post-Brexit.

It was nothing of the kind.

SoftBank scented a winner whose value the local investors were too short sighted to see, a depressingly common occurrence on these shores. The pound’s Brexit driven slump helped no end and the result was the fall of a vanishingly rare UK tech star into foreign hands.

The consolation was that SoftBank was an investor, rather than a rival, with an interest in nurturing its charge to get the best out of it.

Trouble is, with SoftBank looking to raise cash, thats now changed.

The deal struck with Nvidia is very different beast.

No less than Hermann Hauser, Arm’s founder, described it as an “absolute disaster for Cambridge, the UK, and Europe” that would destroy jobs and shatter the company’s business model.

He is far from alone in having grave concerns about where this might end up.

Arm is one of the least well known and appreciated success stories this country has ever produced. It’s a chip designer that licences its products to other firms, which go on to manufacture and use them in their products. You can find them everywhere from your iPhone to your fridge. Pay attention to the latter in particular. Arm is a very big deal in what’s become known as “the internet of things”.

A big part of its success has been its neutrality, it’s absence from jostling and jockeying that are a feature of the technology industry, and that sometimes involve governments, notably the US and China. 

Their butting heads was what led to the excision of Huawei from Britain’s 5G network, which threatens what had been a leading position in the new tech.

Arm’s neutrality was preserved by SoftBank. Critics justifiably fear it will fall under away under the control of Nvidia, which makes graphics cards used by the video gaming industry, and has been a major beneficiary of the pandemic as a result of people turning to gaming during lockdowns. It also has interests in data centres and AI and has been aggressively buying up technology in those areas.

Nvidia could, if it were so minded, use Arm’s tech to make its own chips, which would be a fundamental change to the company’s operating model, annoying its customers and threatening its eco-system.

Nvidia has made a big fuss about Cambridge, but Hauser fears this is meaningless unless legally enforced. Not for nothing did he cite another bad deal involving a British company: the hostile takeover of Cadbruy by America’s Kraft Foods.

One of the undertakings to preserve British jobs made during that process was infamously reversed within a matter of weeks of the deal’s completion. The headquarters was also subsequently gutted.

London’s takeover rules were tweaked with the aim of making companies keep promises made in the heat of battle, but they wouldn’t appear to apply here.

So what next? There has been strong speculation that the deal will be “called in” and handed to the Competition & Markets Authority. The government could, in theory, do that on national security grounds (media plurality, public health, and financial security can also be considered but wouldn’t appear to be relevant here) because its products are used by the defence industry.

The political backdrop makes that a racing certainty. The government is proposing to destroy Britain’s trading relationship with its biggest partner, the EU, because Boris Johnson’s BFF Dominic Cummings reportedly wants the freedom to subsidise the next Apple.

To cavalierly allow foreign businesses to play pass the parcel with the nearest the UK has to a tech kingpin would look very strange when set against that. Some very uncomfortable would be raised questions for a government, which has them coming out of its ears.

Putting the proposed tie up in the hands of regulators therefore makes all the sense in the world. While it  appears more likely than not to go ahead, such a step would at least put off the necessity of a government that claims it backs Britain to find excuses for allowing yet another deal that’s bad for the country for a few months.