United States president Donald Trump has blocked Broadcom’s attempted hostile takeover of Qualcomm, ending what would have been the largest takeover on record in the high-tech industry, valued at an estimated $140 billion (£100bn).
“In the absence of information that changes CFIUS’s assessment of the national security risks posed by this transaction, CFIUS would consider taking further action, including but not limited to referring the transaction to the president for a decision”, Treasury said in the letter, which a much amused Qualcomm made public. Donald Trump has issued a presidential order which has halted the takeover of Qualcomm for the time being.
Politico reported that the decision to block the buyout come after Committee on Foreign Investment in the United States determined that the takeover would diminish Qualcomm’s investment in 5G technology, which would play to China’s favor. By allowing Qualcomm to slip into the hands of a foreign country, the US would be left behind. That’s because Qualcomm is locked in a head-to-head race with China’s Huawei Technologies Co over which company will dominate the development of next-generation wireless technology.
Broadcom initially made a bid for Qualcomm past year, but Qualcomm wasn’t interested.
If the takeover had taken place, the new group would have been the world’s third-biggest chipmaker after Samsung (KRX: 005930) and Intel (NASDAQ: INTC).
Most assumed Broadcom would walk away from the Qualcomm deal and some identified San Jose-based Xilinx Inc and Israel’s Mellanox Technologies Ltd as its likely next targets. On the other hand, Broadcom is widely believed to be better at acquiring, converting, and selling assets instead of a focus on R&D.
Intel’s Broadcom deal alone would be worth $170 billion, according to Barron’s, and that’s without the successful Broadcom acquisition of Qualcomm. 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.
The order also said that Broadcom’s avgo 15 proposed candidates to Qualcomm’s board of directors have been “disqualified”, Qualcomm has previously rejected Broadcom’s proposed director nominees to its board.
While Broadcom strongly disagreed with the committee’s findings which suggested there were “potential national security concerns” there were also concerns, again highlighted by the committee, that investment in research at Qualcomm would be cut back should the takeover go through.
On Sunday, CFIUS sent a letter to lawyers at Broadcom and Qualcomm claiming that had repeatedly violated an order to inform the panel five days ahead of any action on its plan to redomicile from Singapore to the US. Lawmakers accused the company of having close links to Beijing, and said it posed a threat to USA national security.
Hunter said it could reflect “an evolution in the thinking” of the committee, perhaps an indication that it’s going to approach transactions in which foreign people or entities seek to own 5G wireless technology with the same sensitivity and rigor that the feds now “apply to military equipment traditionally”.
This is the second deal the United States president has blocked on national security grounds since taking office, following the $1.2bn sale of money transfer company Moneygram to China’s Ant Financial, Alibaba’s digital payments subsidiary. As per him, allowing an American technology company to be acquired by a foreign company would snatch its leadership in the semiconductor and wireless industry. According to a source that Reuters cited, if the merger had been successful, in the next 10 years, the USA military might have ended up relying on Huawei hardware to maintain communications.
While Broadcom pursues Qualcomm and Intel waits, Qualcomm has also put a cash offer on the table to acquire another chipmaker, Netherlands-based NXP Semiconductors.