Nvidia surges 8% after agreeing to acquire Arm for $40 billion

• Nvidia surged on Monday after it agreed to acquire UK-based Arm Holdings for $40 billion.
• The acquisition will give Nvidia a solid footing in the smartphone space, given that the popular Qualcomm Snapdragon mobile chip is built on Arm architecture.
• The deal is expected to be immediately accretive to adjusted earnings per share and gross margins, according to Nvidia.
• SoftBank, the owner of Arm, will remain committed to Arm's long-term success via its ownership stake in Nvidia, which is expected to be under 10%.
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Nvidia surged as much as 8% on Monday after it agreed to acquire Arm Holdings for $40 billion, creating an artificial intelligence powerhouse.

The deal gives Nvidia strong exposure to the smartphone market, as many popular mobile chips like the Qualcomm Snapdragon are built on Arm's architecture, and will build upon its artificial intelligence initiatives.

"The combination brings together NVIDIA's leading AI computing platform with Arm's vast ecosystem to create the premier computing company for the age of artificial intelligence, accelerating innovation while expanding into large, high-growth markets," the company said.

The combination of the two semiconductor companies is expected to be immediately accretive to Nvidia's adjusted earnings per share and gross margins.

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SoftBank, the owner of Arm, will "remain committed to Arm's long-term success" through its ownership stake in Nvidia, which is expected to be under 10%, according to the release.

SoftBank originally acquired Arm for 24.3 billion British pounds in 2016.

The proposed deal has been approved by the boards of Nvidia, Arm, and SoftBank. Nvidia will fund the deal in both cash and stock. SoftBank will receive $21.5 billion in Nvidia stock and $12 billion in cash, with $2 billion of that cash payable at signing.

Nvidia will also pay $5 billion in cash or common stock to Softbank depending on Arm reaching certain performance targets, and will issue $1.5 billion in equity to Arm employees.

Nvidia will issue 44.3 million shares and use cash on hand to fund the deal.