Why the USA killed Broadcom's giant bid for Qualcomm

14 March, 2018, 06:21 | Author: Brenda Erickson
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Hock Tan, the CEO of Broadcom Ltd. even met with the US Treasury Dept.to address these security concerns, claiming that the company's proposed buyout of Qualcomm would actually benefit the US security. Singapore-based Broadcom, on the other hand, disagrees with Trump's decision, saying its acquisition of Qualcomm does not pose any security risk.

That could mean a significant reduction in spending on 5G research and development at Qualcomm, which totaled $5.5 billion in its most recent financial year.

"There is credible evidence that leads me to believe that Broadcom... through exercising control of Qualcomm... might take action that threatens to impair the national security of the United States", the statement read.

The CFIUS had concluded that Broadcom's proposed takeover of Qualcomm could pose a risk to the national security of the USA, the Treasury Department said in a letter last week. In 2016 President Obama effectively killed the proposed takeover of German chipmaker Aixtron by Chinese company Fujian (credit to Ropes & Gray's Matthew Rizzolo who highlighted the Obama executive order in a LinkedIn post).

A Qualcomm-Broadcom deal could be the biggest technology sector takeover on record.

Intel is the world's second largest chip maker, however, if Broadcom were successful in its bid for Qualcomm, then the company would be faced by a massive threat in the newly created giant.

The move is highly unusual and at the same time highly demonstrative of Trump's presidency - unusual, because a USA president has previously used an executive order to block such transactions only five times in history, and demonstrative of Trump's continued push to put "America first".

Another worry is that the USA would lose its leadership position in 5G wireless technology if Qualcomm is acquired.

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Huawei, China's largest homegrown smartphone maker and a leader in tech innovation has been at the center of attacks by USA politicians.

Qualcomm was never really open to the idea of being acquired by Broadcom even though the latter has revised its bid multiple times and even tried to fill Qualcomm's boards with members that viewed the merger favorably.

This move will help Qualcomm relax a bit, but it's hard to tell whether it will hurt or help its pending acquisition of NXP. (NASDAQ:QCOM), which has been under government scrutiny due to national security concerns.

With Broadcom's US move scheduled to take place by April 3, the next few weeks stand to be interesting ones for Qualcomm and Broadcom investors. CFIUS cited Broadcom's thrifty approach to R&D and argued that the Singapore-based company would likely cut costs at Qualcomm, which would in turn weaken its ability to compete against Chinese telecoms rivals such as Huawei.

The Trump administration isn't exclusively concerned about foreign technology-based companies.

This is not the first time Donald Trump has intervened in the acquisition of a USA company by a foreign entity.

Also, a few months back, Huawei said it failed to strike a deal with a US carrier (believed to be AT&T) to sell its smartphones. Last September, he blocked the sale of Hillsboro, Ore. -based Lattice Semiconductor (LSCC) to Canyon Bridge Capital Partners, which has ties to a fund owned by the Chinese government.


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