US President Donald Trump blocked Monday an unsolicited bid by Singapore-based Broadcom to take over smartphone chipmaker Qualcomm, citing national security concerns.
Trump issued an order barring the proposed mega-acquisition, saying there is credible evidence such a deal “threatens to impair the national security of the United States,” according to a White House statement.
The order came despite Broadcom’s assurances that it would complete its move to the United States by early April, ahead of a planned Qualcomm shareholder vote on the $117 billion deal — meaning any national security concerns were moot.
“Broadcom strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns,” the company said, adding that it was reviewing the order.
The Treasury Department said in a letter over the weekend that Broadcom had violated a Committee on Foreign Investment in the United States order on three separate occasions by failing to give advance notice before taking actions such as filing takeover-related securities filings in the United States.
A CFIUS investigation of the proposed acquisition so far has “confirmed” national security concerns earlier identified by US officials, according to the letter.
Trump ordered Broadcom and Qualcomm to “immediately and permanently abandon the proposed takeover.”
The rival chip giants were told to notify CFIUS in writing that all aspects of the order had been followed.
“This deal was a bad idea from the start,” said analyst Patrick Moorhead of Moor Insights and Strategy.
Broadcom shares closing the trading day up 3.5 percent to $262.84 and gaining slightly more in after-market trades.
Qualcomm shares sank 4.4 percent to $60.04 in after-market trades.
– Battling boards –
Qualcomm has been maneuvering for weeks to rebuff Broadcom’s unwanted advances, and had asked CFIUS to look into national security implications of a merger.
Concern over China’s potential influence, and rising US protectionist sentiment, hangs over an effort by California-based Qualcomm to repel a Singaporean firm’s hostile takeover bid.
Qualcomm rejected multiple Broadcom offers during weeks of parries and thrusts between the two firms since the proposed deal emerged in November.
The company, which makes most of the world’s microprocessors for smartphones, postponed until April 5 an annual shareholders’ meeting after secretly requesting a national security review of Broadcom’s bid.
CFIUS noted that a Broadcom-Qualcomm merger could weaken Qualcomm’s leadership in the field.
This would likely help Chinese competitors such as telecommunications firm Huawei, particularly in the emerging 5G blazing fast wireless internet, where a stronger China could present a national security issue.
While they are rival chip companies, Broadcom and Qualcomm are very different in their approaches to the market, according to Moorhead.
Qualcomm is known for mobile chip innovations that set industry standards, for example in new superfast 5G wireless connection technology, the analyst noted.
Meanwhile, he said Broadcom is adept at using intellectual property developed by others and making products at low cost, referring to them as “implementors.”
Moorhead likened the idea of merging the companies to mixing oil and water.
– Mobile military –
CFIUS likely had China concerns, possible Broadcom’s relationship with entities there or the fact that the only company other than Qualcomm investing heavily in long-term mobile chip research is China-based Huawei, the analyst speculated.
Along with self-driving cars, drones and robots relying on blazingly fast wireless data connections, such networks will also be relied on by the military.
“I’m a technology analyst, not a military analyst, but it makes sense to me that troops will be wirelessly connected in the air, on the water and on the ground,” Moorhead said.
“There will be drones and robots.”
Broadcom’s initial offer was tinged by politics, coming just after the company’s chief executive, Hock Tan, appeared at the White House with Trump to announce plans to move the firm back to the United States from Singapore.
Because Broadcom is based in the Southeast Asian financial hub essentially for tax purposes, the US government’s “case is terribly misinformed” regarding a purchase of Qualcomm, said Stacy Rasgon, an analyst at market research firm Bernstein.
“I get the concerns about China taking our intellectual property etc… but I think they are misplaced in this specific case,” Rasgon told AFP in an earlier interview.