Published: Wed, March 14, 2018
Markets | By Noel Gibbs

Trump blocks Qualcomm's acquisition

Trump blocks Qualcomm's acquisition

Broadcom has announced that it will relocate its worldwide headquarters to the United States by April 3, 2018, as it continues its efforts for a hostile takeover of Qualcomm.

Trump signed an order late on Monday to halt what would have been the biggest-ever technology deal on concerns that a takeover of Qualcomm by the Singapore-based company would erode the United States' lead in mobile technology and give China the upper hand.

The Singapore-based Broadcom has been trying to acquire fellow chipmaker Qualcomm for the past several months, but the proposed merger was met with constant rebuttals. A scenario in which China dominates 5G wireless equipment, with potential security repercussions for the U.S., is a major concern of the Trump administration.

"It's a real threat", said James Lewis, a former U.S. national security official who is now vice president at the Center for Strategic and International Studies in Washington.

According to President Trump, there are some concerns that the acquisition of Qualcomm by Broadcom could affect the national security of the US.

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The Trump administration, however, has defended the move. CFIUS, which reviews foreign purchases of USA businesses, comprises members of the State, Defense, Justice, Commerce, Energy and Homeland Security Departments and is led by Treasury Secretary Steven Mnuchin. Broadcom, for its part, tried to circumvent the opposition by shifting its corporate headquarters from Singapore to the United States, which would make it a U.S. company and no longer subject to CFIUS's overview.

The CFIUS had concluded that Broadcom's proposed takeover of Qualcomm could pose a risk to the national security of the US, the Treasury Department said in a letter last week.

The panel had already signaled that it might recommend that the deal be blocked. President Trump has placed an order blocking the takeover, due to some security concerns. There are also concerns that Broadcom could scale back research and development spending at Qualcomm, given its track record of aggressive cost-cutting.

So, what does Trump mean by "national security", exactly?

"Reduction in Qualcomm's long-term technology competitiveness and influence in standard setting would significantly impact USA national security", CFIUS said in its recommendation.

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For the past few months, there's been a will-they-won't-they dance going on between Qualcomm and Broadcom.

"Among semiconductor companies, Qualcomm typically ranks second (after Intel) in R&D expenditure", CFIUS wrote.

Senate Minority Leader Chuck Schumer (D-NY) speaks after the Senate Democratic weekly policy luncheon on Capitol Hill in Washington, U.S., March 6, 2018. Companies including Qualcomm, based in San Diego, and China's Huawei have been investing heavily to stake their claim in the underlying technology. "Provisions of law ... provide adequate and appropriate authority ... to protect the national security in this matter". At that point, Broadcom could contest the authority of CFIUS since its jurisdiction covers foreign companies. "Even before that, we believe deal size (Intel $244 billion market cap and Broadcom $104 billion), global regulatory approval, and customer supplier concentration fears and thus pushback are sufficient to keep us skeptical".

"On the basis of the findings", the order continues, "the proposed takeover of Qualcomm by [Broadcom] is prohibited, and any substantially equivalent merger, acquisition, or takeover, whether effected directly or indirectly, is also prohibited".

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