Trump blocks Broadcom's takeover of Qualcomm, citing national security

The tech industry's cozy ties to China may not last

President Donald Trump blocked Singapore chipmaker Broadcom from pursuing a hostile takeover of USA rival Qualcomm, ruling the proposed combination would imperil national security.

In a presidential order, Trump said there was "credible evidence" to believe that the takeover might "impair the national security of the United States".

It was also unlikely to pass muster in Washington because the Committee on Foreign Investment in the United States (CFIUS), a panel formed from various USA government agencies that effectively acts as an arbiter of various takeover deals, had already warned the takeover could act against U.S. national security.

The order also states that Broadcom will not be allowed to purchase or merge with Qualcomm in any way and that all of the people Broadcom has proposed to Qualcomm's board are disqualified.

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The Committee on Foreign Investment in the United States (CFIUS), which raised concerns about the Qualcomm deal, listed the highly-leveraged nature of Broadcom's bid for its larger rival as a major concern and a risk to Qualcomm's leadership on mobile technology. Qualcomm had argued Broadcom's offer undervalued it.

Of course, Qualcomm has done a great job of positioning itself as an early leader in 5G technology, one of the things that made it attractive to Broadcom and the reason the US government ultimately decided it shouldn't fall into foreign ownership.

On the other side of the table, former CEO Paul Jacobs stepped down from his role as Qualcomm's executive director and took a regular board seat instead. "What is unusual is blocking the sale on national security grounds for a non-defense-related company". The Trump administration is considering clamping down on Chinese investments in the US and imposing tariffs on a broad range of its imports to punish Beijing for its alleged theft of intellectual property.

Tan bought California-based companies Broadcom for $37 billion in a leveraged deal in 2015 and Brocade Communications in a $5.5 billion deal two years later.

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There have been concerns within the mobile industry that a Broadcom takeover would delay the rollout of 5G, such is Qualcomm's influence. Broadcom is in the process of reincorporating in San Jose, Calif.

If Broadcom successfully relocates to the USA, it would escape the jurisdiction of CFIUS, but for the time being Trump's order has put a hard stop on the company's ambition to acquire Qualcomm in any case.

Less than 24 hours have passed that we reported the plans of Broadcom to shift its headquarters to the U.S.to simplify the Qualcomm acquisition but a massive wall stands in the way of the Wi-Fi chip manufacturing giant. This may give its biggest rival, China's Huawei, a greater path towards dominance in the latest wireless technology. "In the case of Qualcomm, this will be 5G cellular".

Trump hosted Broadcom's Tan in the White House past year when the executive announced the proposed move. While Intel is "eager for Broadcom to fail", it could make a play for the company if the merger gained momentum, the Journal said in another report on Friday.

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"While Qualcomm still remains an M&A candidate for another chip player, this deal dissolving is a clear positive for Intel which is in a further position of strength with the potential marriage of Broadcom and Qualcomm now broken up by the Beltway before it even got to the altar", Ives wrote. He previously adopted the same approach when blocking the sale of U.S. technology firm Lattice Semiconductors to Chinese-backed company Canyon Bridge Capital Partners in September 2017, citing national security risks again. However, a letter published by the CFIUS last week confirmed that the committee was looking at the acquisition unfavourably, in particular, due to "Broadcom's history of slashing research spending and its ability to compromise Qualcomm's assets through relationships with foreign governments".

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