Nvidia-Mellanox deal not expected to receive fast-track Chinese review

US chipmaker Nvidia's planned $6.9 billion takeover of Israeli peer Mellanox is expected to go through an ordinary merger review procedure by China's competition regulator, as opposed to a fast-track process, MLex has learned.

It is understood that the deal will be subject to a normal procedure, which typically involves in-depth scrutiny by the State Administration for Market Regulation. In contrast, deals reviewed under the agency's simplified procedure are normally cleared by the regulator quickly within the first phase, or 30 days, of the 180-day review cycle.

A report by Bloomberg on Tuesday said that Nvidia had filed for a simplified procedure in China. The report was later corrected, but still raised questions over the process that Nvidia's submission might go through.

According to Chinese merger control rules, there are six circumstances under which transacting parties may file for fast-track reviews, including horizontal mergers in which the combined shares of all parties are less than 15 percent, and vertical and other non-horizontal mergers in which the parties have a share of less than 25 percent of each of the relevant markets.

The simplified procedure also applies to the creation of offshore joint ventures that do not conduct economic activity within China; acquisitions by business operators of equity or assets of offshore companies with no activities in China; and changes from joint control to sole control by one of the parents of an existing joint venture.

In the case of Nvidia, the California-based chip supplier controlled 81.2 percent of worldwide shipments of add-in-board graphics processing units in the fourth quarter of 2018, while AMD — its only competitor in the higher-end graphics market — lagged far behind with a 18.8 percent share, according to a March 5 report by US computer graphics research firm Jon Peddie Research.

Mellanox is also globally known for its interconnect products. Company data shows it was connecting 265 systems, or 53 percent, of the world's top 500 supercomputers with its InfiniBand and Ethernet technologies as of November 2018.

The large market shares controlled by both companies in their own markets reduce the likelihood that the deal will qualify for a fast-track procedure.

First announced on March 11, the planned tie-up of Nvidia and Mellanox is expected to close by year-end.

In addition to China, it also requires competition clearance in the US, Germany, the Czech Republic, Hungary and Mexico. Nvidia earlier confirmed with MLex that it had filed relevant paperwork in China.

Shares of both Nvidia and Mellanox are traded on Nasdaq.