Broadcom Could Fight Block Against Qualcomm Merger Bid
02:25, Mar 14, 2018
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Now, President Trump has announced he's nixing the deal in a statementreleased by the White House on Monday. It's all about China and 5G.
Trump's move to block the takeover of chipmaker Qualcomm by Singapore-based Broadcom marks a rare instance in which a USA president intervened to prevent the foreign acquisition of an American firm.
There were reportedly concerns that the takeover could have led to China pulling ahead in the development of 5G wireless technology.
Broadcom says that it is reviewing its legal options. Qualcomm's investment in 5G wireless services as well as NXP purchase, which will offer significant exposure to self-driving cars and automotive market, will provide significant advantage to Broadcom.
The US Treasury Department warned in a letter made public in early March that since Broadcom was financing the deal with over $100 billion in debt, it would be under pressure to squeeze more profits out of Qualcomm. If there is less competition, usually there is less need to significantly change products year-on-year, meaning consumers often pay more for less.
Broadcom said it "strongly disagrees" a tie-up could raise national security concerns and had pledged to invest to ensure USA leadership in 5G, the superfast networks crucial to robotics, connected cars, and other smart devices.
Fears that a Broadcom-Qualcomm merger would see a USA -based company lose its edge in such an important market was one on the key risks that the Committee on Foreign Investment in the United States (CFIUS), an interagency panel led by the Treasury Department, expressed in a letter to the two companies, according to the Washington Post. If that happened, China's Huawei Technologies, a rival to Qualcomm and a major producer of mobile chips, might become much more dominant around the world.
The Broadcom decision also comes after the Trump administration previously blocked two other Chinese companies from buying USA businesses.
CFIUS announced in January that it would no longer be supporting a $1.2 billion deal which would have seen the takeover of US-based money transfer business Moneygram by Chinese firm Ant Financial, citing changes to the political landscape.
On the other hand, Broadcom said it was reviewing Mr. Trump's order and refused the notion that the bid raises a security threat to the US. Chinese venture investment in Silicon Valley will likely diminish under this hostile environment, forcing U.S. tech companies to adapt their strategies and perhaps accept lower valuations once Chinese money drains out of the market. A spokesperson for Huawei did not respond to a request for comment Tuesday. At the same time, the company would not "fly" past the boom of devices connecting to the Internet via 4G and 5G - in chips for them and a strong Qualcomm.
Only five takeovers of American firms have been blocked by USA presidents on national security grounds since 1990. Massive investment in R&D is an integral part of Qualcomm to maintain its global leadership position in the smartphone chipset market.
There have only been four previous such moves: George HW Bush's decision to block the Chinese takeover of an aircraft parts maker in 1990; Barack Obama's decision to block the construction of a Chinese-owned wind farm near a U.S. air base in 2012; Mr Obama's decision to block the Chinese takeover of a German chip parts maker in 2016 and Mr Trump's decision past year to block the Chinese takeover of a USA chipmaker.
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