What happened

Shares of semiconductors giant Nvidia (NASDAQ:NVDA) suffered a setback today after the U.S. Federal Trade Commission (FTC) announced late yesterday that it is suing to block the company's planned $40 billion acquisition of British company Arm Holdings.

New commentary just released by Citigroup isn't helping matters much -- and Nvidia stock is down 6% as of noon ET.

Short circuit on a semiconductor chip.

Image source: Getty Images.

So what

The FTC explained that "the proposed merger would give Nvidia the ability and incentive to use its control of this technology to undermine its competitors, reducing competition and ultimately resulting in reduced product quality, reduced innovation, higher prices, and less choice, harming the millions of Americans who benefit from Arm-based products."  

As an agency charged with preserving competition in the marketplace, including in the semiconductors industry, the FTC is therefore moving to block the acquisition.

Now what

Analysts are now pretty sure that Nvidia will either be forced to abandon its planned acquisition of Arm or will decide to do so on its own -- that trying to fight the FTC would be an expensive and ultimately hopeless battle. "Nobody thinks the deal is going to close," said analyst Stacy Rasgon at investment bank Bernstein, for example.  

The situation is not entirely hopeless. StreetInsider.com reports that, in a note out this morning, Citi analyst Atif Malik wrote, "We view a potential path forward" -- if, among other measures, sufficient barriers are created between the entities "in order to ease the regulatory antitrust concerns." But the chance is slim -- Citi estimates no more than a 5% to 30% chance that this deal will go through.

Investors today seem to agree with that view, and they're not one bit happy about it.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.