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.
After getting delayed by at least a month or so following a regulatory investigation just days before the meeting was scheduled to take place, Qualcomms timetable to hold the meeting is now bumped up to ten days from now — and possibly before Broadcom may complete its move to the U.S. The new change is coming as part of a presidential order by the Trump administration to block a takeover attempt by Broadcom, which is looking to acquire the company in a hostile maneuver worth over $100 billion — making it the largest tech deal of all time. Qualcomm planned to hold the meeting last week, but had to push it back pending an investigation by the Committee on Foreign Investment in the United States (or CFIUS). Qualcomm also said in a statement that the order disqualified the nominees from Broadcom for the shareholder meeting, which would have given it the capacity to acquire Qualcomm in a hostile takeover. Broadcom said it planned to move its headquarters to the U.S., and Bloomberg reported that the company said it would have completed its move by April 3 — again, days before the shareholder meeting was to originally take place. The sum of all these moves — strategic or otherwise — is that, for now, it looks like Qualcomm isnt going to even give Broadcom a shot at getting the directors on board that could help it complete its hostile takeover. Its also a setback for Broadcom CEO Hock Tan, known as an aggressive dealmaker thats looking to lock up the industry in the face of companies like Intel looking to make their moves into the 5G space. Qualcomm Incorporated (NASDAQ: QCOM) today received a Presidential Order to immediately and permanently abandon the proposed takeover of Qualcomm by Broadcom Limited (NASDAQ: AVGO). Under the terms of the Presidential Order, all of Broadcoms director nominees are also disqualified from standing for election as directors of Qualcomm. Qualcomm was also ordered to reconvene its 2018 Annual Meeting of Stockholders on the earliest possible date, which based on the required 10-day notice period, is March 23, 2018. Stockholders of record on January 8, 2018 will be entitled to vote at the meeting. In short, the drama continues. See also: A brief history of the epic battle over the fate of Qualcomm.