Trump blocks Broadcom’s $142bn bid for Qualcomm

Trump blocks Broadcom’s $142bn bid for Qualcomm


President Donald Trump blocked Broadcom’s $142bn hostile bid for rival chip company Qualcomm, saying he was acting to protect the national security of the US.

The unprecedented presidential action to prevent a giant merger before it was even agreed threatened to turn the White House into a pivotal player in corporate dealmaking, while thrusting national security considerations to the centre of the wave of consolidation that has transformed the US chip industry over the past two years.

The hostile takeover bid by Singapore-registered Broadcom had already aroused opposition from the Committee on Foreign Investment in the US, an inter-agency group in Washington that vets foreign acquisitions. However, while Cfius warned of possible national security concerns, it had called for a full Investigation only a week ago.

The hasty White House intervention appeared to cut off Broadcom’s hopes of sidestepping the deeper national security review. The company said shortly ahead of Mr Trump’s order that it expected to complete a process of “redomiciliation” — turning itself back into a US company — by April 3. It claimed that it was “in all important respects a US company,” with most of its management and operations taking place in the US.

In the presidential order released on Monday, Mr Trump said there was “credible evidence” to believe that after a purchase of Qualcomm, Broadcom might “take action that threatens to impair the national security of the United States.” He went on to prohibit the deal, and order the companies to “immediately and permanently abandon the proposed takeover of Qualcomm.”

Qualcomm is one of the largest makers of chips and other technologies for mobile devices, and derives most of its revenues supplying Apple’s iPhone and their Android competitors.

Cfius had pointed to a number of potential concerns arising from Broadcom’s bid for the leading US wireless chip technology company. These ranged from possible cuts to research and development spending that would hold back Qualcomm, to a veiled warning that Broadcom could harm the US company’s assets through arrangements with “third-party foreign entities”.

Broadcom said in a short statement that it “strongly” disagreed that the proposed acquisition of Qualcomm raised any national security concerns.

A paper circulated inside the White House earlier this year had warned of the risks to US national security if Chinese companies take a lead in the next generation of high-speed wireless technology, known as 5G.

Mr Trump’s order appeared to point to a complete victory for Qualcomm, which had resisted the acquisition approach and secretly requested the Cfius intervention at the end of January.

It was unclear on Monday whether Broadcom would attempt to challenge the order, since its planned conversion in less than a month into a US company would put it outside the reach of Cfius.

In another step that should help Qualcomm buttress its defences against unwanted takeovers, Mr Trump ordered the San Diego-based company to move ahead quickly with its annual shareholder meeting. Broadcom had lobbied Qualcomm shareholders to use the meeting to elect a majority of its own nominees the board, a move that could have forced Qualcomm into accepting the takeover approach.

The embattled company had won a one-month reprieve when Cfius ordered it to delay the meeting a week ago pending a national security review of the proposed deal.

With Broadcom now barred, Mr Trump ordered Qualcomm to issue a notice for the meeting “as soon as possible” and then hold the meeting within 10 days of that — a step that could quickly see the opponents of Broadcom’s takeover offer consolidate their hold on the board. Qualcomm duly responded to the order on Monday by rescheduling the annual meeting for March 23.

Qualcomm’s shares dropped nearly 5 per cent in after-Market trading after the Mr Trump’s order was released, wiping off about $4bn in value, while Broadcom edged up 1.5 per cent.

Presidential deal-busting

Scores of companies have dropped mergers after a Cfius intervention but only a handful have been scuppered by the sitting US president. President Donald Trump’s decision on Monday to bar Broadcom from pursuing its $142bn takeover of Qualcomm is the largest to be blocked by executive order and the only the fifth in history, writes Eric Platt.

Here are the four other deals that were thwarted by presidential order:

2017 President Donald Trump blocked Canyon Bridge Capital Partners purchase of Lattice Semiconductor. Canyon Bridge faced opposition to the $1.3bn semiconductor deal because it received some Investments from China Venture Capital Fund Corporation.

2016 President Barack Obama prevented the €670m ($760m) sale of German semiconductor supplier Aixtron to Fujian Grand Chip Investment Fund, a fund based in China. Aixtron, which made products used in weapons systems, found resistance from Cfius, and ultimately the president, who said the deal “threatens to impair the national security of the United States.”

2012 President Barack Obama barred Chinese-owned Ralls Corp from developing a wind farm on land near a naval base in Oregon that was used to test drones and conduct combat training. President Obama ordered the company to sell the sites and remove its equipment from the land.

1990 President George W Bush ordered China National Aero-Technology Import and Export Corporation (CATIC) to sell aeroplane parts manufacturer Mamco, which it had purchased months earlier. Cfius raised concerns that the deal could give the Chinese government access to military secrets and provide it with the technology to build fighter jet engines with in-flight refuelling abilities, according to the Washington Post at the time.



Source: ft.com

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