Breakingviews - Arm M&A calls for Boris Johnson veto

An ARM and SoftBank Group branded board is displayed at a news conference in London, Britain July 18, 2016.

LONDON (Reuters Breakingviews) - Boris Johnson’s digital credentials are as yet untested. The possible sale of UK-based chip designer Arm to U.S. giant Nvidia provides a test. The prime minister has the power to stop a deal.

Britain has a thriving startup scene but few large tech companies. That’s a weakness: big firms invest more, and their presence helps guarantee access to crucial technologies. Cambridge-based chip designer Arm, which Japan’s SoftBank Group bought for $32 billion in 2016, is one of a few such businesses in Britain.

When SoftBank bought Arm in 2016, it promised to keep the company’s headquarters in Cambridge and boost hiring. A sale to Nvidia, as is possible according to multiple reports, could be more damaging to UK interests. Nvidia has its own semiconductor researchers. It would make sense for Chief Executive Jensen Huang to fold Arm’s engineers into his U.S. teams. That puts almost 3,000 UK jobs at risk and potentially weakens Cambridge’s tech hub.

Then there’s technological sovereignty. Arm claims a 90% share of the market for mobile application processors, a crucial part of smartphones, and is gunning for the same share in self-driving car chips. Waving through an Nvidia-Arm combination would hand control of this intellectual property to a U.S.-based company, potentially putting it in the middle of the growing tech conflict with China.

Johnson has the means to stop a deal. Britain lacks an equivalent of the Committee on Foreign Investment in the United States, or CFIUS, which can review and block buyers from overseas. But UK takeover laws allow the government to intervene in deals that threaten national security. New guidance on the legislation cites examples of firms that may need protecting, including ones that design the “instruction set architecture” for computer processors – like Arm.

Intervening would be risky, particularly since Brexit has already dented the UK’s friendly image with overseas investors. It may also discourage entrepreneurs from starting businesses in a country that could stop them from selling to a foreign buyer. Yet Britain would hardly be alone. China and America are protective of domestic technology, while European neighbours like Germany have tightened their takeover rules. If Johnson is serious about boosting Britain’s technological ambitions, he may have to start by tying Arm down.


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