Trump Blocks Broadcom Takeover of Qualcomm, Citing Security Concerns
by: The Knowledge GroupMarch 20, 2018
This is the second time Trump has forbidden a multinational merger on security grounds—something presidents rarely do. What’s at stake? U.S. tech prominence. And Trump’s statement signals that Broadcom’s plans to become a US-based company won’t change the decision.
Qualcomm is a front runner in U.S. artificial intelligence and the competition to develop the world’s 5G wireless networks.
In November, Broadcom made an unsolicited offer to buy it out. The $117 billion deal would have been the most expensive tech acquisition ever initiated. Broadcom attempted to stack Qualcomm’s board to succeed in the move. But the Committee on Foreign Investment in the United States stepped in, directing Qualcomm to delay its meeting. The deal hadn’t been confirmed yet, but time was of the essence. Once Broadcom reincorporates as a U.S.-based company, it would be too late for the CFIUS to classify the takeover as a threat to U.S. security.
CFIUS identified (and Trump clearly noted) several big red flags.
- Would Broadcom steer the company to debt management and profitability, and away from long-term research and development?
- Would Broadcom’s relationship with “third-party, foreign entities” mean the company was too friendly with Chinese 5G innovators?
Whoever wins the race to develop 5G stands to reap huge profits from new networks—enabling self-driving cars and the Internet of Things. This is why R&D is so critical. The worry is that Broadcom would not mind allowing Huawei, a Chinese company, to get out in front with 5G.
Indeed, the United States is reportedly considering nationalizing the 5G wireless network—a direct response to China.
Trump’s scrutiny of transactions that touch on Asian interests is unprecedented. The number of such transactions being obstructed is notable.
All this is happening despite Broadcom’s bid to win the U.S. administration’s approval. The company’s CEO, Hock E. Tan, was born in Penang, Singapore and educated at MIT and Harvard. Tan came to the White House to announced Broadcom’s plans to bring its headquarters from Singapore to the United States. Trump was “thrilled” but still won’t let the company buy Qualcomm.
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