In an extra-ordinary turn of events on Monday, President Donald Trump blocked Broadcom’s $117 billion bid for Qualcomm citing it as a threat to national interest. Singapore-based Broadcom, on the other hand, disagrees with Trump’s decision, saying its acquisition of Qualcomm does not pose any security risk.
Supporting his decision to block the deal, Donald Trump said there is “credible evidence” that Broadcom and its affiliates “might take action that threatens to impair the national security of the United States.” Further, Donald Trump ordered that both Qualcomm and Broadcom must “immediately and permanently abandon the proposed takeover.”
CFIUS or the Committee on Foreign Investment in the United States has been keeping an eye on Broadcom’s hostile takeover of Qualcomm. The agency believes that the acquisition would give a foreign entity control of a U.S. business. Further, the agency is also concerned that the deal could prove a setback for the U.S. in the development of 5G technology, and at the same time, gives an edge to China.
Qualcomm has made big investments in the 5G research. A Qualcomm-Broadcom deal could be the biggest technology sector takeover on record. The deal would make Broadcom the third-biggest maker of microchips, behind only Intel and Samsung.
The growing influence of Huawei is a major factor killing the Qualcomm-Broadcom deal. Even though Huawei is in no way directly connected to the deal (it does use chips from both in its telecom equipment), CFIUS is concerned that after the acquisition, Broadcom would slash Qualcomm’s research and development (R&D) funding. This will indirectly benefit Huawei, which is also in a race to develop the 5G wireless technology. Broadcom is known for cutting R&D to boost short-term profits.
To give an idea of Huawei’s rising clout, the tech company last year posted sales of 600 billion yuan ($95 billion). Its revenue is twice as much as Broadcom and Qualcomm combined, according to Bloomberg. In the last three decades, the company has expanded from just being an electronics reseller into one of the world’s most important communications companies with exposure in cybersecurity, smartphones, telecoms gear and cloud computing.
“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,” Mario Morales at the global research firm IDC 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.”
For the last few months, the Singapore-based company has been pushing hard to acquire Qualcomm, which on its end is making efforts to reject the bid. However, to boost its acquisition offer, Broadcom lately has worked on putting supportive members on Qualcomm’s board. President Trump’s order clearly says that the Broadcom-Qualcomm acquisition or merger is not possible, and that the Broadcom proposed members on Qualcomm’s board are disqualified.
On the other hand, in a statement late Monday, Broadcom said it is currently reviewing the order, but it “strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns.”
Broadcom meanwhile is working to address the concerns that its acquisition will pose a security risk. According to Bloomberg, the company is currently working to shift its headquarters from Singapore to the U.S. The transition is expected to be completed by April 3. “US national security concerns are not a risk to closing, as Broadcom never plans to acquire Qualcomm before it completes redomiciliation,” the chip maker said in a statement.
As of now, it is not clear if such a move from the Singapore-based company will win Trump’s approval. If Broadcom fails to get approval even after shifting the headquarters, then the company would possibly take the matter to court.
This is not the first time Donald Trump has intervened in the acquisition of a U.S. company by a foreign entity. In September, Trump blocked a Chinese state-owned company from acquiring an American semiconductor firm. Even Barack Obama blocked a technology acquisition by a Chinese investment fund citing similar concerns, notes the BBC.
Also, a few months back, Huawei said it failed to strike a deal with a U.S. carrier (believed to be AT&T) to sell its smartphones. The U.S. authorities also recently blocked a proposal by Alibaba’s Ant Financial to acquire the money transfer firm Moneygram.
