Trump Blocks Broadcom-Qualcomm Deal

There have been many roadblocks in Broadcom’s attempt to take over Qualcomm from past few months. Rejections to bids, lawsuits against Qualcomm, and many other obstacles came into the way of this deal. Now, there is an involvement from the President of the U.S. to this acquisition. Donald Trump blocked the Broadcom-Qualcomm deal citing that the deal poses a threat to national security. The blocking of this deal sent a message to overseas investors that any deal capable of providing an edge to China will be rejected and national security will be the reason cited. The Chinese factor was hovering over the U.S. government’s fears in Broadcom’s acquisition of Qualcomm, the firm which has been competing with China’s Huawei Technologies Co. for development of next-generation wireless technology.

“There is credible evidence that leads me to believe that Broadcom,” by acquiring Qualcomm, “might take action that threatens to impair the national security of the United States,” said Donald Trump in the order released on Monday.

Broadcom released a statement outlining that it has been reviewing the order and disagrees that its acquisition of Qualcomm leads to national security issues. The blocking of Broadcom’s $117 billion bid showed Trump’s stance on foreign takeovers of the U.S. technology. Moreover, this decision is a part of a bigger picture in which the country wants to take down China on trade. The Trump administration has been thinking upon reducing Chinese investments in the country along with imposing tariffs on various imports due to alleged theft of intellectual property by China.

“This decision hangs a huge ‘not-for-sale’ sign on just about every American semiconductor firm,” said Scott Kennedy, who studies China’s economic policy at the Center for Strategic & International Studies in Washington. “A Chinese entity doesn’t need to be anywhere near a transaction now in semiconductors for the deal to be nixed.”

Till now, five decisions have been taken by the U.S. Presidents to block deals by American firms on security grounds since 1990. Barack Obama blocked two deals in two terms, while Trump blocked two in six months. On Broadcom-Qualcomm deal, Trump was not the only obstacle. Lawmakers in Washington have been proposing a regulation which would extend the number of overseas investments requiring national security approval. The Trump administration endorsed the bill proposed by a Texas Republican Senator John Cornyn, keeping China in mind.

According to the person familiar to the matter of blocking of Broadcom-Qualcomm deal, Hock E. Tan, CEO of Broadcom visited the Pentagon to meet with officials of Committee on Foreign Investment in the United States (CFIUS) to address concerns related with Qualcomm deal. Tan opined that Broadcom-Qualcomm deal would work in favor of the U.S. as it will help in development of next generation of wireless technology, 5G. However, Trump blocked the deal hours after the meeting.

“China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover,” CFIUS said in the letter. “Given well-known U.S. national security concerns about Huawei and other Chinese telecommunications companies, a shift to Chinese dominance in 5G would have substantial negative national security consequences for the United States.”