LONDON—The U.K. government said it would probe Nvidia Corp.’s NVDA -2.37% $40 billion deal to buy British chip-designer Arm from SoftBank Group Corp., 9984 -0.74% over possible national security issues, adding new regulatory scrutiny to the proposed deal.
The deal—combining two of the world’s biggest chip designers—could redraw the chip industry. But the proposed combination has attracted intense scrutiny from regulators around the world, and accusations from Nvidia NVDA -2.37% competitors that it could hand the U.S. company an unfair advantage in an intensifying global race for chip know-how and manufacturing capacity.
Arm, based in Cambridge, England, has long based its business model on partnering with as many companies as possible in providing its chip designs. That philosophy led to those designs being incorporated in more than 95% of the world’s smartphones.
British Digital Secretary Oliver Dowden on Monday asked the country’s antitrust agency to investigate the merger’s national-security implications and deliver a report by July 30. The digital secretary can clear the deal with or without conditions, or nix it.
The national-security review comes on top of the agency’s previously announced plans to probe the deal on antitrust grounds.
Nvidia Chief Executive Jensen Huang has previously said he supports keeping Arm’s open business model, but competitors have been skeptical. An Nvidia spokesman said the company didn’t “believe that this transaction poses any material national security issues.” He said it will work with British authorities on the probe.
Nvidia shares were down about 1% in early New York trading. Nvidia executives expected a possible U.K. national-security review when it agreed to buy Arm and factored that risk into what it has said is an 18-month timeline for completing the deal, a person close to Nvidia said.
Nvidia agreed to buy Arm from SoftBank in September. That deal came about four years after SoftBank bought Arm for about $32 billion. Arm, founded in 1990 as a spinoff of a joint venture that included Apple Inc., designs blueprints for clients, including other chip companies, to make smartphone processors.
Write to Stu Woo at Stu.Woo@wsj.com
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