Trump puts a stop on Broadcom's takeover of Qualcomm

Mar 14, 2018, 00:36
Trump puts a stop on Broadcom's takeover of Qualcomm

Broadcom, however, is scouring the order, stating that it "strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns".

The order said "there is credible proof that leads to believe that if Broadcom Limited, an anonymous society under Singapore law, holds control over Qualcomm Incorporated it could introduce measures that threaten to harm United States national security".

Shares of San Diego-based Qualcomm are down 8% so far in 2018, while shares of Broadcom are down about 1.6%. Besides banning the deal, it also disqualifies all of Broadcom's director nominees from being elected as Qualcomm's directors.

The committee, which operates under the auspices of the Treasury Department, is tasked with reviewing foreign acquisitions of USA companies on national security grounds. The company raised its bid for the acquisition of rival Qualcomm to $121 billion last month after the latter rejected a $103 million offer in November 2017.

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.

If research and development at Qualcomm foundered under Broadcom, the administration was concerned China-based Huawei Technologies would have an opening to become an even bigger player in the booming market of producing chips that power smartphones, smart home gadgets and other mobile devices. Both moves were initiated on national security grounds.

Trump acted on a recommendation by the Committee on Foreign Investment in the U.S., which reviews acquisitions of American firms by foreign investors.

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This presidential order follows a letter from the Committee on Foreign Investment in the U.S. warning against the takeover.

Rosenzweig added Broadcom could fire Qualcomm management, cut research spending on 5G or stop Qualcomm from participating in the 5G standards-setting process.

"We believe Broadcom's options start with a continuation of broadly-scoped communications-focused M&A", B Riley analyst Craig Ellis said.

Huawei is also Qualcomm's main rival when it comes to developing technology for the emerging 5G standard. The deal would also have substantial negative national security consequences for the United States, as well as it would remove a telecommunications technology supplier for federal defense agencies.

Trump ordered Broadcom and Qualcomm to "immediately and permanently abandon the proposed takeover". While Intel is "eager for Broadcom to fail", it could make a play for the company if the merger gained momentum, the Journal said in another report on Friday.

In spite of the fact that Broadcom is based in Singapore, Trump is likely to have had another Asian country in mind when passing his presidential order: China. Now, President Trump has announced he's nixing the deal in a statement released by the White House on Monday. "U.S. national security concerns are not a risk to closing, as Broadcom never plans to acquire Qualcomm before it completes redomiciliation", Broadcom claimed in a statement.

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.