Broadcom Takeover of Qualcomm Blocked by President Trump’s Executive Order

U.S. President Donald Trump on Monday blocked microchip maker Broadcom’s planned takeover of Qualcomm citing national security grounds, officially terminating what would have been the tech industry’s biggest deal ever amongst concerns that it would give rival China the upper hand in mobile communications and related technologies.

A building on the Qualcomm campus is seen, as chip maker Broadcom Ltd announced an unsolicited bid to buy peer Qualcomm Inc for $103 billion, in San Diego, California, U.S. November 6, 2017. REUTERS/Mike Blake – RC1BFE90B2C0

China is said to be the main reason behind Trump’s decision, US daily ‘The New York Times’ said.

“There is credible evidence that leads me to believe that Broadcom Limited, a limited company organized under the laws of Singapore….through exercising control of Qualcomm Incorporated (Qualcomm), a Delaware corporation, might take action that threatens to impair the national security of the United States” read the statement.
“The proposed takeover of Qualcomm by the Purchaser is prohibited, and any substantially equivalent merger, acquisition, or takeover, whether affected directly or indirectly, is also prohibited” the statement added.

This presidential order reflected an idea that the United States’ lead in creating technology and setting standards for the next generation of mobile cell phone communications would be lost to China if Singapore-based Broadcom took over San Diego-based Qualcomm, according to a White House official.

Recently, Qualcomm has emerged as one of the biggest competitors to China’s Huawei Technologies in the sector, making Qualcomm a prized asset.

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

“A shift to Chinese dominance in 5G would have substantial negative national security consequences for the United States,” CFIUS said in a statement. “While the United States remains dominant in the standards-setting space currently, China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover.”

Quoting Reuters, “A source familiar with CFIUS’ thinking had said that, if the deal was completed, the US 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).”

Huawei has been forging closer commercial ties with big telecom operators across Europe and Asia, putting it in prime position to lead the global race for 5G networks despite US concerns.

Huawei has a dominant position in China, which is set to become the world’s biggest 5G market by far and has also made inroads in the rest of world to compete with rivals such as Ericsson and Nokia in several lucrative markets, including countries that are longstanding US allies.

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.

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

The presidential order to block the deal cannot be appealed. However, it is not clear what rules Broadcom would have to follow if it goes ahead with announced plans to move its headquarters to the United States.

Companies may challenge CFIUS’s jurisdiction in court but may not challenge the inter-agency panel’s national security findings, a CFIUS expert said, as reported in Reuters.

The Trump administration is considering clamping down on Chinese investments in the U.S. and imposing tariffs on a broad range of its imports to punish Beijing for its alleged theft of intellectual property. Only five takeovers of American firms have been blocked by the U.S. presidents on national security grounds since 1990. Of those, Barack Obama blocked two deals during his two terms. Trump has blocked two in six months.

Source: Reuters, CNN

The Kootneeti Team - White House Watch