Microsoft Has Acquisition Deal With Nvidia

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casper2

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Source: informationweek

Microsoft Has Acquisition Deal With Nvidia

Redmond's purchase option automatically kicks in if a third-party offers $3.4 billion or more for tablet chipmaker's shares.

From InformationWeek: Microsoft and Nvidia have an agreement in place that spells out terms relating to a possible acquisition of the graphics and mobile processor manufacturer, regulatory documents indicate.

The deal gives Microsoft the exclusive right to match any offer for 30% or more of Nvidia's outstanding shares by a third-party, according to an SEC filing reviewed by InformationWeek.

"Under the agreement, if an individual or corporation makes an offer to purchase shares equal to or greater than 30% of the outstanding shares of our common stock, Microsoft may have first and last rights of refusal to purchase the stock," Nvidia said in the filing, dated May 27. The pact puts Redmond in a position to effectively veto attempts by any of its rivals to snap up Nvidia, which makes key components for the red-hot tablet market, which includes forthcoming Windows 8 slates.

Nvidia produces the ARM-based Tegra chip, which is widely used by a number of major mobile device manufacturers. It's employed in Google Android-based tablets and smartphones from Samsung, Motorola, and others. Microsoft itself earlier this week demonstrated Windows 8 tablets running on the new, quad-core "Kal-El" version of Tegra.

There's also been rumblings over the past couple of years that Apple views Nvidia as a possible takeover target. Apple's A5 CPU for the iPad 2 uses ARM's system-on-a-chip design, an architecture in which Nvidia has considerable expertise as Tegra also relies on ARM.

Microsoft and Nvidia negotiated their acquisition deal as part of a broader arrangement under which Microsoft licensed Nvidia graphics chips for use in the Xbox entertainment and gaming console. The obscure pact is more than a decade old, but is apparently still in effect?even though Nvidia lost the contract to provide GPUs for the Xbox to ATI Technologies in 2003. ATI was later acquired by AMD.

Buried deep within a quarterly earnings report Nvidia filed last week was a warning to investors that a number of factors could derail an acquisition by a third-party. For one, Nvidia's board can issue new shares without stockholder approval. That means it could dilute the percentage available to a would-be acquirer. Also, its strict voting rules would make it difficult for a third-party to mount a hostile acquisition campaign by proxy.

Most notably, Nvidia said any change in control of the company could be delayed or prevented by "our agreement with Microsoft," according to the filing. At current valuations, the clause would kick in if a potential acquirer offered about $3.4 billion for 30% or more of Nvidia.

The deal could be extremely valuable to Microsoft. Any acquisition of Nvidia by a rival could deliver another setback to the software maker's significantly delayed tablet plans. Conversely, if Microsoft took control of Nvidia it could maintain a tighter grip on its supply chain for mobile components.

There are already signs Microsoft is looking to rein in the hardware stack around Windows. Company representatives have reportedly issued specific guidelines to OEMs who want to build tablets and other devices for Windows 8 in order to ensure a uniform experience for end-users and to ease headaches for developers. An outright buyout of some component suppliers, including Nvidia, could be the next logical step.

Microsoft officials declined to comment.

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HawkMan

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As long as Microsoft doesn't do anything as stupid as putting Nvidia chips into the next-gen xbox. Because that would make no sense at all.

Why. MS will put whatever chip in the next gen that is cheapest for the best performance they can get. But only if they also get full control and ownership of the chip design. like they do with the 360, but didn't with the original Xbox. by owning Nvidia or a big part of it, that wouldn't be a problem.

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remixedcat

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what about apple and linux now? driver support could be bad now!!

this is a scary prediction....

we now have microsoft+nvidia

we now have apple+intel

we now have linux/droid+AMD

a tri-opoly....

intel reads this and announces that they will step up GPU efforts and have stronger alliance with apple

amd reads this and works better with linux as a response and helps fuel development allies with google.

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SoyoS

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I don't think you guys are reading the article. It's just a deal that lets Microsoft purchase nVidia if someone else attempts to, in laymen terms. It doesn't mean they will.

Exactly, Microsoft are simply protecting their investment by ensuring that no other companies (Google or Apple in particular) buy nVidia then halt all the work they are doing on Windows 8 ARM processors. Microsoft are not actually buying Nvidia.

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Max Norris

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no but nvidia would be incentivised to slack off on development for mac and linux.

All speculation of course, but personally I doubt that.. deliberately sabotaging their own profits? Sounds exactly the opposite of what a corporation tries to do, never mind the possible legal repercussions.

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Jebadiah

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Exactly, Microsoft are simply protecting their investment by ensuring that no other companies (Google or Apple in particular) buy nVidia then halt all the work they are doing on Windows 8 ARM processors. Microsoft are not actually buying Nvidia.

I don't get it. Please explain. Does this mean if Google bids $100bn on Nvidia, Microsoft will pay Nvidia $101bn to buy them out immediately?

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Ryoken

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no but nvidia would be incentivised to slack off on development for mac and linux.

Wouldn't happen, at least the Mac part..

People who buy Macs generally aren't about to buy PC's.. Additionally lots of people who buy macs also put Windows on it.. It would make sense to MS to work even closer with Apple if they acquired nVidia to increase their cut of that pie..

I don't get it. Please explain. Does this mean if Google bids $100bn on Nvidia, Microsoft will pay Nvidia $101bn to buy them out immediately?

If means they have the option to.

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guru

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I wonder if we are seeing the beginning of a transition from Wintel to Winvidia, Quad /Octocore chips with nvidia gfx built in would make Laptop /Tablet with enough performance to to be enough for casual gaming, Office, Browsing needs with like 10-20hrs of battery life. Many consumers might as well choose that option.

This deal is probably to ensure Nvidia doesn't sell out to Google/Apple and keep MS out of above mentioned future possibility.

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Melfster

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I think people are missing something here. This agreement was made around the time of the first xbox. Microsoft nor Nvidia knew that Arm chip business would take off. All this agreement does is make it difficult for another company to buy Nvidia.

Microsoft for years didn't want to be dependent on Intel. Hence they made NT to be able to use different processors from different manufactures. But as time wore on those other manfactures disappeared. This was because new software had to be compiled for those processors and they were more expensive then intel offerings. So the years pass and .Net I suspect was designed with goal of being able to be run on cpus other then intel. This leads us to the present where Arm processors are gaining traction, are cheaper and more power efficient then intels chips. Even though arm based chips won't be faster or be backwords compatible with all legacy windows software. It is a sure bet that new software will be able to work on Arm processors. Somes software will have to be recompiled to work on Arm, other software (probable .net based) will be able to run on both arm based windows 8 hardware and Intel.

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George P Global Moderator

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People shouldn't freak out over nothing, and also IF, and that's a IF, MS wanted to buy nVidia it could, nothing in the regulations stops them from doing so. nVidia doesn't own or control x86 or PC hardware, it doesn't tie into MS's Windows PC monopoly to the same extent as it would if MS bought someone like AMD for example (which is still possible since AMD isn't exactly rolling in profits per se). nVidia also doesn't have much of a market in ARM/mobile at this point either. In the end it'd be like Apple buying that one ARM chip maker who's name I can't remember..... PA Semi? w/e. It'd just make bigger waves, hell nVidia drivers would get better at least. :p

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Ayepecks

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I seriously doubt regulators would allow such a deal to proceed.

Why? I don't see anything monopolistic about it. It's actually more in the opposite direction. What unfair competition or integration do you think this would cause?

It seems unlikely this would ever happen.

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