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Trump blocks Broadcom's attempted takeover of Qualcomm


It might be over just like that. Broadcom's hopes of acquiring Qualcomm might have been quashed for good. President Trump has issued an order blocking Broadcom's proposed takeover and anything "substantially equivalent" to it over concerns that it might "impair the national security" of the country. The order also disqualifies all 15 of Broadcom's proposed directors for Qualcomm. The move follows a letter from the Committee on Foreign Investment in the US warning the companies that it believed the takeover would pose too great a security risk. If Broadcom bought Qualcomm, CFIUS argued, it would likely cut costs at the American company and weaken its ability to compete against Chinese rivals like Huawei. That, in turn, would let China dominate 5G wireless and leave Americans vulnerable. CFIUS also said that Broadcom defied an interim order requiring that it give a panel 5 business days' notice before it took steps to officially relocate to the US. We've asked both Broadcom and Qualcomm for comment, although Broadcom had previously said it was in "full compliance" with the temporary order. To put it mildly, things aren't looking good for Broadcom. There was a chance it could have escaped CFIUS' scrutiny by claiming that the takeover fell outside of its jurisdiction, but that opportunity is gone now -- as long as Trump's order holds, the deal is off. While Qualcomm isn't likely to complain much given that it repeatedly rejected Broadcom's bids as undervalued, Broadcom now faces the prospect of having to either look at another acquisition target or accept that it will have to tackle 5G by itself. Update: Not surprisingly, Broadcom said it's "reviewing" the order and "strongly disagrees" that its would-be acquisition poses national security risks. Qualcomm noted that it received the Order, and said it will reconvence its annual stockholders meeting on March 23rd.

Trump administration’s block in Qualcomm vs. Broadcom merger should shake tech to its core


This weekend, I published a comprehensive overview of the epic hundred-billion-dollar Qualcomm versus Broadcom merger battle that has taken place over the past few weeks. In that post, I concluded that … the Trump administration is going to attempt to maintain jurisdiction over the merger regardless of Broadcoms redomicile process [back to the US], and will likely end up negative on the deal although it may not outright block it. Not only did the Trump administration move faster than expected to make a decision on the merger through CFIUS — the Committee on Foreign Investment in the United States ( TechCrunchs overview of the committee here) — but it decided to unilaterally block the transaction from taking place. While not unprecedented in the history of CFIUS, this is an incredible decision on a U.S. tech merger, and has massive ramifications for tech company valuations and strategy going forward. While there are many issues at stake in the merger, the one that drove interest in Washington has been Qualcomms leadership role in 5G, a technology that the Trump administration considers to be a national security priority. Only two companies in the world have the technological prowess today in this emerging standard: U.S.-based Qualcomm and China-based Huawei. The Pentagon and national security beltway types have been deeply concerned about Huawei technology encroaching on U.S. telecom infrastructure, even going so far as to block the introduction of Huaweis new mobile phone from being introduced on AT&Ts network. Broadcom is Singapore-domiciled, but has the majority of its workers and office space in North America. However, it has a reputation — whether earned or not — of playing a classic private equity game of massively cutting R&D to boost short-term profits. Washingtons concern has been that a Broadcom takeover of Qualcomm would mean that Americas only player in the 5G race would be eliminated through budget cutting, leaving China to monopolize a key technology standard for a generation. There are a lot of unique properties here: the size of the transaction, the complicated background of Qualcomm and Broadcom, the recent timing of Trumps tariffs and other protectionist measures and the focus on telecom, which has traditionally been very sensitive in DC security circles. That said, it is now clear that the Trump administration intends to empower CFIUS to review more technology deals, particularly when companies are potentially transacting with China and other declared strategic competitors. If such a pattern continues, we can expect to see potential declines in valuations for technology companies, which will no longer have deep-pocketed Chinese buyers as potential acquirers. Thats not all, though. A reform measure currently in Congress would extend CFIUS authority to potentially include minority investments as well — such as rounds of venture capital. While that bill is not yet firmed up, it could massively chill Chinese venture investment in Silicon Valley, which has been robust and expanding over the past few years. Its important to note that whatever the rhetoric, this was not about jobs or the economy directly. Qualcomm was expected to stay in the United States along with most of its workers, and Broadcom has already announced its decision to redomicile back to the United States following the passage of the tax cuts at the end of 2017. This is about security, and which country is going to hold power in the 21st century. The Trump administration has declared that its foreign policy will be America First, and this decision lives up to that slogan. China is the second largest economic market in the world, and almost certainly the second most important technology market after the United States. A disruption in the flow of talent and capital between these markets — as we witnessed today — will force company CEOs to resist foreign capital and potentially accept lower valuations as a result. It will also limit the strategic opportunities for global expansion, requiring companies to adapt their strategies not just in China, but elsewhere in the world. In short, todays decision is the pen stroke heard around the world.