President Trump Halts Broadcom Takeover of Qualcomm on Security Grounds

This post was originally published on Reuters.

(Reuters) – U.S. President Donald Trump issued an order on Monday prohibiting semiconductor maker Broadcom Ltd’s (AVGO.O) proposed takeover of Qualcomm Inc(QCOM.O) on grounds of national security, bringing an end to what would have been the technology industry’s biggest deal ever.

Qualcomm had rebuffed Broadcom’s $117 billion takeover bid, which was under investigation by the U.S. Committee on Foreign Investment in the United States (CFIUS), a multi-agency panel led by the U.S. Treasury Department that reviews the national security implications of acquisitions of U.S. corporations by foreign companies.

“The proposed takeover of Qualcomm by the Purchaser (Broadcom) is prohibited, and any substantially equivalent merger, acquisition, or takeover, whether effected directly or indirectly, is also prohibited,” the presidential order released on Monday said.

The order issued by the White House cited“credible evidence” that led Trump to believe that Broadcom taking control of Qualcomm“might take action that threatens to impair the national security of the United States.”

This is the fifth time ever a U.S. President has blocked a deal based on CFIUS objections and the second deal Trump has stopped since assuming office.

Trump’s move accelerated a decision that appeared likely after CFIUS told Broadcom in a letter on Sunday that its investigation“so far confirmed the national security concerns.”

The U.S. Treasury Department letter was“obviously a poison pill,” Jim Lewis, a CFIUS expert at the Center for Strategic and International Studies, said before the Trump order. He described the CFIUS communication to Broadcom as“unprecedented.”

The semiconductor industry is racing to develop chips that power so-called 5G wireless technology, allowing the transmission of data at faster speeds.

San Diego-based Qualcomm has emerged as one of the biggest competitors to Chinese companies vying for market share in the sector, such as Huawei Technologies Co, making it a prized asset.

A source familiar with CFIUS’ thinking had said that if the deal was completed, the U.S. military was concerned that within 10 years,“there would essentially be a dominant player in all of these technologies and that’s essentially Huawei, and then the American carriers would have no choice. They would just have to buy Huawei (equipment).”

Broadcom had struggled to complete its proposed deal to buy Qualcomm which had cited several concerns including the price offered and potential antitrust hurdles.

Reporting by Diane Bartz and Chris Sanders in Washington; Supantha Mukherjee and Pushkala Aripaka in Bengaluru; Greg Roumeliotis in New York; Editing by Peter Henderson

Perspective:

(BBC) – US President Donald Trump has blocked a planned takeover of chipmaker Qualcomm by Singapore-based rival Broadcom on grounds of national security.

His order cited “credible evidence” that the proposed $140bn (£100bn) takeover “threatens to impair the national security of the US”.

Qualcomm was already trying to fend off Broadcom’s bid.

Broadcom said it strongly disagreed that its proposed takeover gave any cause for concern.

The deal would have created the world’s third-largest maker of microchips, behind Intel and Samsung.

It would also have been the biggest takeover the technology sector had ever seen.

The presidential order said: “The proposed takeover of Qualcomm by the Purchaser (Broadcom) is prohibited, and any substantially equivalent merger, acquisition, or takeover, whether effected directly or indirectly, is also prohibited.”

Crown Jewel

The chipmaking sector is in a race to develop chips for the latest 5G wireless technology and Qualcomm is considered to be a leader in this field, followed by Broadcom and China’s telecoms giant Huawei.

Analysts said a deal between Qualcomm and Broadcom could have given Huawei the chance to take over the top spot in years to come – a situation US politicians wanted to prevent given their ongoing security concerns around Chinese telecom firms doing business with US carriers.

But others have said Mr Trump’s decision was more about competitiveness than security concerns.

“Given the current political climate in the US and other regions around the world, everyone is taking a more conservative view on mergers and acquisitions and protecting their own domains,” said Mario Morales, vice president of enabling technologies and semiconductors at global research firm IDC.

“We are all at the start of a race, and you have 5G as a crown jewel that everyone wants to participate in – and every region is racing towards that,” he told the BBC.

“Semiconductor technology and companies like Qualcomm will be an important weapon in that 5G arms race [and] the US like other nations and regions want to be first.”

Broadcom said it was reviewing the order and “strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns”.

The company had been pursuing San Diego-based Qualcomm for about four months.

Last week, however, Broadcom’s hostile takeover bid was put under investigation by the Committee on Foreign Investment in the US (CFIUS), a multi-agency body led by the US Treasury Department.

The US company had rejected approaches from its rival on the grounds that the offer undervalued the business, and also that any takeover would face antitrust hurdles.

Earlier this year, Chinese telecoms giant Huawei said it had not been able to strike a deal to sell its new smartphone via a US carrier, widely believed to be AT&T.

The US also recently blocked the $1.2bn sale of money transfer firm Moneygram to China’s Ant Financial, the digital payments arm of Alibaba.

This post was originally published on Reuters.