Trump Blocks Broadcom Takeover Of Qualcomm On National Security Concerns

Jeannie Matthews
March 13, 2018

It said it will maintain Qualcomm's 5G research and development resources and it pledged to create a new $1.5 billion fund to "train and educate the next generation of engineers in the U.S." to "ensure America's lead in future wireless technology".

The administration moved with unusual speed in the matter that caught many involved in the negotiations off guard.

Qualcomm has been fighting Broadcom's advances and had been lobbying US Committee on Foreign Investment in the United States (CFIUS) to block the deal. Trump's order can not be appealed, legal experts said.

The Trump Adminstration's move reportedly shows the high value of the United States on maintaining the domestic edge in the technological development.

The prospect of a weakened Qualcomm creating an innovation void in US telecommunications is at the crux of CFIUS's national security concerns with a Broadcom takeover.

"Reduction in Qualcomm's long-term technological competitiveness and influence in standard setting would significantly impact USA national security", Mir wrote. "It will power all the devices that are starting to connect to the Internet - like smart home speakers and even cars". These chipsets enable connected cars to speak to each other as well as stoplights.

The decision underlines the economic protectionism of the Trump administration and comes just days after the United States announced it would impose tariffs on steel and aluminum imports in order to protect U.S. firms.

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Since January, CFIUS has blocked Ant Financial's US$1.2 billion acquisition of U.S. money transfer company MoneyGram International, and has urged AT&T Inc, the second-largest wireless carrier, to cut commercial ties with Chinese phone maker Huawei Technologies Co because of national security concerns. And several other technology deals fell apart, after CFIUS raised concerns. The president blocked Canyon Bridge Capital Partners LLC's attempt to buy Lattice Semiconductor Corp., ignoring the firm's pledge to save jobs. CFIUS noted that Broadcom had violated its rules "on at least three separate occasions", including when it recently moved to relocate its headquarters to the United States without providing proper notice to the committee.

Huawei has a dominant position in China, which is set to become the world's biggest 5G market by far, and has also made inroads in the rest of world to compete with rivals such as Ericsson and Nokia in several lucrative markets, including countries that are longstanding USA allies.

Companies may challenge CFIUS's jurisdiction in court but may not challenge the inter-agency panel's national security findings, a CFIUS expert said. 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.

He described Trump's executive order as "brutal". "This feels a little more personal to me". In response, Broadcom attempted to replace some of Qualcomm's board, allowing the purchase to be finalized.

Qualcomm's shares dipped 22 cents to close at $62.81 on Monday, while Broadcom's shares gained 3.5 percent to end the day at $262.84 on the Nasdaq. While chips that connect phones to networks and run programmes on smartphones generate the majority of its sales, patents on inventions that cover the fundamentals of all modern phone systems let Qualcomm collect highly profitable fees from phonemakers.

While not directly citing China in the order, the White House is understood to be concerned about Broadcom's relationships with foreign entities, including Chinese telecommunications giant Huawei Technologies.

"Typically when you're doing these CFIUS cases you look at what the business is and how sensitive it is", Hunter said. After the recent corporate tax cuts, deficits are going to require continuing investor faith, too. "A Singaporean investor you would not normally have considered a high risk".

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