Daily Brief: Nvidia’s Abandoned Its Takeover Of ARM, And SoftBank Will Rue The Day

Daily Brief: Nvidia’s Abandoned Its Takeover Of ARM, And SoftBank Will Rue The Day

about 2 years ago3 mins

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Nvidia announced this week that it’s abandoning its acquisition of British chip designer ARM, and the chipmaker’s never looking back.

What does this mean?

Nvidia announced plans to buy ARM from Japanese conglomerate SoftBank back in September 2020, in hopes of expanding its reach across the entire semiconductor industry. But that lofty goal was also why the $40 billion deal was arguably doomed from the start, with some of ARM’s biggest customers – including Microsoft and Qualcomm – expressing worries that Nvidia would end up with too much control over chip designs. The US government seemed to agree, which might be why it moved to block the deal back in December.

So this week, Nvidia finally abandoned what would’ve been the biggest deal in the history of the chip industry. SoftBank, for its part, responded with plan B: it’s planning to list ARM on the stock market by March next year.

Why should I care?

For markets: That’s got to hurt.

SoftBank will receive a breakup fee of up to $1.3 billion from the failed deal, but the company would’ve made a lot more had the deal gone through – more even than the $40 billion initially proposed. See, Nvidia was planning to buy ARM partly using its own stock, which has more than doubled since the agreement was first struck. That means the deal would’ve actually been worth as much as $80 billion.

Nvidia, SoftBank stock
Source: The Wall Street Journal, FactSet

Zooming in: SoftBank’s bad year.

SoftBank could’ve done with that cash: the company reported on Tuesday that its profit fell 97% last quarter versus the same time in 2020, after its investments in tech stocks plummeted amid looming interest rate hikes. This money, then, could’ve helped it buy back some of its shares – which have collapsed 45% in the last year – and boost the value of those left over. That’s left SoftBank scrambling to raise cash some other way, which might be why it’s now reportedly thinking of selling some of its substantial holdings in Chinese giant Alibaba.

Keep reading for our next story...

Pfizer Sold $13 Billion Worth Of Vaccines Last Quarter

Pfizer image

Pfizer revealed on Tuesday that it sold $13 billion worth of its Covid vaccine last quarter, as all you suckers for rational, peer-reviewed science play right into the drugmaker’s hands.

What does this mean?

Pfizer – which posted its quarterly earnings on Tuesday – is making hay while the sun shines, with sales of its Covid vaccine representing 52% of its total revenue last quarter. Trouble is, revenue from the company’s hospital segment – which specializes in things like surgical products – barely moved at all, while its internal medicine business (think heart and diabetes drugs) fell 3% compared to the same time in 2020. That brought Pfizer’s overall revenue in below analysts’ expectations for the quarter, even though it was more than twice as high as the year before. And while Pfizer thinks it’ll rack up record revenue this year, it fell short of analysts’ expectations there too – which might be why investors initially sent the company’s stock down 5%.

Vaccine stocks tumble

Why should I care?

Zooming in: Pfizer’s got leverage.

Pfizer can’t rely on its vaccine forever, which might be why analysts think it’ll start buying up biotech companies and expand into other treatments. There are a couple of reasons why now’s a good time to do just that. For one thing, biotechs are looking cheap: an index tracking some of the biggest biotech stocks is down over 20% in the last year. And for another, Pfizer’s stock – which is up 50% over the same period – is a pretty strong bargaining chip in negotiations.

The bigger picture: A big year for deals?

Pfizer’s not the only drugmaker with money to spend: analysis out in December showed that 18 of the biggest in Europe and the US have a potential cash pile of over $1.7 trillion between them this year. And sure, they might use that money to buy back shares or increase dividends, but some analysts think they’ll make up for a slow 2021 by splashing out on deals instead.

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