US president Donald Trump has blocked Broadcom’s attempted hostile takeover of Qualcomm, ending what would have been the largest takeover on record in the high-tech industry, valued at an estimated $140 billion (£100bn).
In the order issued late on Monday, Trump cited “credible evidence”that indicated if Singapore-based Broadcom were allowed to buy Qualcomm it “might take action that that threatens to impair the national security of the United States”.
The deal would have created the third-largest chip maker, behind Intel and Samsung. Qualcomm had argued Broadcom’s offer undervalued it.
In a letter last week announcing the probe, CFIUS cited Qualcomm as a leader in developing next-generation 5G wireless technologies, alongside China’s Huawei.
While Qualcomm is known for investing heavily in research and development, CFIUS said Broadcom spends less on R&D and had said it would change Qualcomm’s business model.
The takeover could therefore have weakened Qualcomm’s position in 5G going forward, something that could have given a critical opening to firms such as Huawei, the letter said.
“A shift to Chinese dominance in 5G would have substantial negative national security consequences for the United States,” CFIUS said in the letter.
Broadcom had sought to provide assurances it would continue investing in research after the takeover, but in a letter on Sunday sent to both companies CFIUS said Broadcom’s actions had “so far” confirmed its national security concerns.
The letter said CFIUS had had to speed up its investigation “in light of the action Broadcom has taken in violation of the interim order”, a reference to Broadcom’s attempt to bring forward its proposed relocation to the US, after which it could have argued the deal was no longer in CFIUS’ jurisdiction.
The national security order can’t be appealed. However, Broadcom may try to continue its pursuit of Qualcomm once its redomiciliation is complete by arguing it is no longer subject to CFIUS’ rules, according to an unnamed person familiar with CFIUS’ thinking cited by Reuters.
Braodcom said it was reviewing the order and that it “strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns”.
“The proposed takeover of Qualcomm by the Purchaser (Broadcom) is prohibited, and any substantially equivalent merger, acquisition, or takeover, whether effected directly or indirectly, is also prohibited,” the order said.
US security agencies have recently reiterated the country’s long-running national security concerns about Chinese technology companies such as Huawei and ZTE, and advised companies and individuals not to buy their products. Huawei said earlier this year it had been unable to complete a deal to sell its flagship smartphones via a US telecoms network that many believe to be AT&T.
This is the second deal the US president has blocked on national security grounds since taking office, following the $1.2bn sale of money transfer company Moneygram to China’s Ant Financial, Alibaba’s digital payments subsidiary. Including this deal, US presidents have blocked a total of five takeovers based on CFIUS investigations.
In November the US president and Broadcom chief executive Hock Tan jointly announced the company’s decision to relocate its headquarters to the US, with Trump saying at the time he was “thrilled” at the move.
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