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Microsoft's buyout pact with Nvidia is unearthed

Leaves Nvidia with few options should it sell
Mon Jun 06 2011, 16:01

AN UNLIKELY BETROTHAL between Microsoft and Nvidia has been uncovered that gives Microsoft the right of first and last refusal to buy Nvidia.

Microsoft entered into an agreement with Nvidia back in 2000 when the chip design outfit was brought in to work on the GPU of what would then become Microsoft's Xbox. That in itself isn't particularly surprising, but Information Week dug up a 10K filing with the Securities and Exchanges Commission (SEC) in which Nvidia reported that Microsoft had first and last rights of refusal should a third party make an offer to buy 30 per cent or more of Nvidia's shares.

The filing, which has caused something of a stir, has been public record for some time, in fact since 2000. However the 2011 story goes something like this: "On March 5, 2000, we entered into an agreement with Microsoft in which we agreed to develop and sell graphics chips and to license certain technology to Microsoft and its licensees for use in the Xbox. Under the agreement, if an individual or corporation makes an offer to purchase shares equal to or greater than 30 per cent of the outstanding shares of our common stock, Microsoft may have first and last rights of refusal to purchase the stock. The Microsoft provision and the other factors listed above could also delay or prevent a change in control of Nvidia."

Back in 2000, Microsoft gave Nvidia some cash to get work going on its Xbox chip. If that sounds odd, then remember that Microsoft saved Apple's bacon back in 2003 with a cash injection by purchasing stock. And given that Nvidia was working on Microsoft's big hope, the Xbox, it's not surprising that Microsoft, with all of its cash and at the height of its powers, wanted to make sure Nvidia wasn't strapped for cash or taken over by a rival company.

So does the buyout clause mean anything? Well it says in black and white that Microsoft will have first and final refusal over purchasing 30 per cent or more of Nvidia, but that doesn't mean it will. Back in 2000, Microsoft needed Nvidia for its then upcoming Xbox gaming console, but now it is no longer using Nvidia's graphics chip designs in the Xbox 360.

To realise just how disinterested Microsoft is in Nvidia lately, its Windows Phone 7 (WP7) hardware specifications don't even mention Nvidia's Tegra chip, it's all Qualcomm. If Microsoft was heavily promoting Nvidia's chips for use on its WP7 operating system, then Nvidia's old 10K filing would really put the rumour mill into overdrive.

Microsoft's decision to invest in Nvidia and have this buyout clause was nothing more than insurance for Microsoft. After all, if Sony or Nintendo came along and bought Nvidia, which at the time was worth considerably less than it is now, then Microsoft's plan for games console domination would have been under considerable threat.

If anything, Microsoft's ability to play king-maker for Nvidia leaves the firm carrying an anvil on its shoulders. Given that rumours of an Nvidia buyout have been swirling around for years in various forms, with Microsoft having the final say only a few companies will ever be in the running to take over Nvidia should it decide to sell.

Both Microsoft and Nvidia declined to comment on the SEC filing. µ


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