The FTSE 100 is forecast to open higher this morning as M&A activity dominates trading – led by the $40 billion takeover of UK tech giant ARM.
Overnight US semiconductor specialist Nvidia confirmed it is buying the Cambridge-based company after a summer of talks with its owner, SoftBank. The acquisition will likely spark a political row amid concerns of UK jobs – the previous government secured assurances when the Japanese investor snapped up ARM from the public markets in 2016.
Arm, which designs chips for smartphones and tablets, was spun out of Acorn in the Nineties. Nvidia, meanwhile, has just overtaken Intel to become the world’s largest semiconductor group – sparking fears that Arm will be drawn into competition wars between US companies.
Nvidia sought to quell worries over jobs, committing to the assurances made at the time of the SoftBank deal which expire next September.
Sonja Laud, chief investment officer at Legal & General Investment Management, told the BBC: “With the expiry about to happen and obviously the Brexit negotiations underway it will be interesting to see how this develops.
“Nvidia has said they will continue investing in particular in research and development using I’m sure the proximity to Cambridge University, particularly around artificial intelligence they will continue to use Cambridge as a hub.”
CMC Markets analyst Michael Hewson said: “SoftBank shares have moved sharply higher in Asia trading this morning on news of the sale, however this optimism needs to be tempered. Not least because the proposed sale has already attracted the attention of the UK government with respect to the thousands of UK jobs based in and around Cambridge, with the CMA likely to take an interest in the sale.”
He added: “The government is likely to want assurances that Nvidia won’t do what Cadbury did with respect to any assurances regarding UK jobs and say one thing and do another. This means there is a high chance that Nvidia may well find it much more difficult than Softbank did when they bought the business under the previous government.”
The increase in mergers and acquisition activity in recent weeks has put a brighter spin on markets for the week ahead. US stocks struggled again last week, notably with tech stocks enduring a further sell-off as investors fret that a Joe Biden win in November’s presidential election will bring taxes hikes to Silicon Valley. Deal fever appears to be gripping the City and Wall Street with the virus crisis making assets cheaper. As well as the ARM deal, US pharma company Gilead Sciences said it is buying cancer drug maker Immunomedics for $21 billion.
The rise in Asian markets is expected to feed through into European trading, and the FTSE 100 is expected to open 18 points higher at 6050 as investors shrug off a rise in coronavirus cases across Europe.
Astrazeneca will be closely watched after the pharma giant said its Covid-19 vaccine trials with Oxford university have resumed. News that a trial patient had become ill and the tests halted last week knocked the drug giant’s share price, so there’s potential for a mini rally back in the stock today.
Sterling will also be in focus as several more months of post-Brexit deal brinkmanship appear likely to spark plenty more action in trading in the pound.