Published: Wed, March 14, 2018
Finance | By Cynthia Curry

Trump halts Qualcomm takeover by Broadcom for national security

Trump halts Qualcomm takeover by Broadcom for national security

His order cited "credible evidence" that the proposed $140bn (£100bn) deal "threatens to impair the national security of the US", reports the BBC. Broadcom played its own game of carrot and stick, with an improved share price offer, but also offered its own proposed board of directors slate to shareholders in a move meant to launch a hostile takeover.

Interestingly, Qualcomm itself had appealed to the CFIUS to block the acquisition on the grounds that Broadcom's offer severely undervalued the company and the final acquisition would likely also face major antitrust challenges.

The proposal, according to Qualcomm's board of directors, didn't ascribe any value to Qualcomm's NXP acquisition in 2016, or the expected resolution of licensing disputes and the greater opportunity in the 5G market.

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.

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. "Articulation of the potential national security concerns, in significant part, is classified".

"In both the definitive merger agreement that Broadcom provided to Qualcomm and in the revised version that Qualcomm sent back to Broadcom on February 26, 2018, one of the closing conditions was that Broadcom redomicile to the US, and notably, in neither party's draft was the closing of the proposed acquisition conditioned on CFIUS clearance", the company said in a statement.

Chan said he found the move "a little puzzling", given that Broadcomm can be considered a USA company in many ways, despite being incorporated in the city-state.

There are also concerns, however, that the block was due to China potentially leading the development in 5G wireless technology.

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The takeover could therefore have weakened Qualcomm's position in 5G going forward, something that could have given a critical opening to firms such as Huawei, the letter said.

A person familiar with CFIUS's investigation, who requested anonymity to speak freely about the matter, said this strategy may have doomed the transaction.

"The Purchaser and Qualcomm shall immediately and permanently abandon the proposed takeover", reads the presidential order. If Broadcom cut Qualcomm's research spending it would favor Huawei Technologies Co.

Its chief executive, Hock Tan, was welcomed to the White House as recently as November, when he announced plans to redomicile Broadcom in the US. Both companies are dubbed as big players in the chip manufacturing industry, however, Qualcomm's business model also includes telecom equipment.

Broadcom, a Singapore-based company, has increasing ties with China.

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

It is a highly unusual move by a President.

The scuttling of the Qualcomm deal also represents a victory for two "cloud czars", Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Microsoft Corporation (NASDAQ:MSFT), which said in December it opposed the deal because it would favor Apple Inc.

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