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Microsoft pact with Nvidia could result in future takeover

Computer giant Microsoft has a deal in place with graphics and mobile processor manufacturer Nvidia that gives the Redmond-based company the exclusive right to equal any offers by third-parties for 30 percent or more of Nvidia’s outstanding shares. The deal effectively prevents any other company besides Microsoft from acquiring Nvidia.

In a Securities and Exchange Commission filing dated May 27 and reviewed by Information Week, Nvidia says, “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 is a major player in the booming tablet component market and also manufactures parts for personal computers. This week at the Computex trade show in Taiwan, Microsoft showed off Windows 8 tablets running on chips made by Nvidia. Other companies using its components include Samsung and Motorola.

The Information Week report suggests that in recent years Apple may have been interested in acquiring Nvidia, though news of the deal beteween Microsoft and Nvidia appears to have put an end to any ideas the Cupertino company may have had regarding a takeover.

In a quarterly earnings report filed last week by Nvidia, the company stated that an attempt by another company to acquire it could be disrupted by “our agreement with Microsoft.” Information Week reported that “at current valuations, the clause would kick in if a potential acquirer offered about $3.4 billion for 30% or more of Nvidia.”

Having the option to prevent another company acquiring Nvidia puts Microsoft in a strong position as it means the computer giant can stop another company coming along and potentially disrupting the supply chain for components for its devices, such as upcoming tablets running Windows 8. Of course, if Microsoft acquired Nvidia then it would have total control over Nvidia’s supply chain.

For the time being at least, it seems that there are no immediate plans for Microsoft to buy Nvidia, although officials at the computer company declined to comment for the Information Week report.

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