Nvidia will pay for the acquisition with a mix of its shares and cash.

Nvidia (NASDAQ: NVDA) has agreed to acquire Arm Limited from SoftBank Group Corp. (TYO: 9984) and the SoftBank Vision Fund in a $40 billion transaction.

Nvidia will pay to SoftBank $21.5 billion in Nvidia common stock and $12 billion in cash. The latter includes $2 billion payable at signing. The number of Nvidia shares to be issued at closing is 44.3 million. Depending upon the achievement of certain financial targets, Nvidia could pay another $5 billion in cash or stock. It will also issue $1.5 billion in equity to Arm employees. (Arm Newsroom)

Mutually beneficial deal

The transaction is one of the largest in the semiconductor industry. According to the Wall Street Journal, it is a win-win for both Nvidia and SoftBank. Arm designs chips that run the lion’s share of the world’s smartphones. Acquiring the company will give Nvidia enormous muscle in that industry.

“Uniting NVIDIA’s AI computing capabilities with the vast ecosystem of Arm’s CPU, we can advance computing from the cloud, smartphones, PCs, self-driving cars and robotics, to edge IoT, and expand AI computing to every corner of the globe,” said Jensen Huang, founder and CEO of Nvidia.

He added that the combination will create a company “fabulously positioned for the age of AI.”

Huang helped co-found Nvidia in 1993.

Meanwhile, SoftBank gets a decent return on its four-year-old investment the acquisition of Arm for $32 billion. Also, SoftBank had been unable to grow the business, so passing off the asset, while the tech going is good, may make sense.

“This is a compelling combination that projects Arm, Cambridge and the U.K. to the forefront of some of the most exciting technological innovations of our time and is why SoftBank is excited to invest in Arm’s long-term success as a major shareholder in Nvidia,” said Masayoshi Son, chairman and CEO of SoftBank Group.

SoftBank going private?

According to an FT report, SoftBank is again mulling a strategy to go private, now that it has completed certain big-ticket asset disposals.

Various factors appear to be driving the decision.

The first is the valuation of $115 billion assigned by the equity market to SoftBank when the sum of its individual holdings is much higher – a discount that stubbornly refuses to go away even after the group lightened its portfolio – nearly 45% on August 4.

Secondly, the SoftBank Group is increasingly pivoting from being an operator in the businesses it has funded to a position simply as an investor and asset manager.

Recent media glare and analysts’ scrutiny of its huge trades related to U.S. tech stocks have also increased the allure of going private for the group.

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