Qual­comm bid nixed


WASH­ING­TON With his swift re­jec­tion of Broad­com Ltd.’s hos­tile takeover of Qual­comm Inc., U.S. Pres­i­dent Don­ald Trump sent a clear sig­nal to over­seas in­vestors: Any deal that could give China an edge in crit­i­cal tech­nol­ogy will be swat­ted down in the name of na­tional se­cu­rity.

Al­though Broad­com is based in Sin­ga­pore, China loomed large over the U.S. gov­ern­ment’s fears about a for­eign takeover of chip­maker Qual­comm. That’s be­cause Qual­comm is locked in a head-to­head race with China’s Huawei Tech­nolo­gies Co. over which com­pany will dom­i­nate the de­vel­op­ment of next-gen­er­a­tion wire­less tech­nol­ogy.

“This de­ci­sion hangs a huge ‘not­for-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.”

The pres­i­dent’s or­der on Mon­day block­ing Broad­com’s US$117 bil­lion bid for Qual­comm is the lat­est sign of Trump’s tough stance on for­eign takeovers of U.S. tech­nol­ogy and is part of a broader move to con­tain China on trade. The Trump ad­min­is­tra­tion is con­sid­er­ing clamp­ing down on Chi­nese in­vest­ments in the U.S. and im­pos­ing tar­iffs on a broad range of its im­ports to pun­ish Bei­jing for its al­leged theft of in­tel­lec­tual prop­erty.

Only five takeovers of Amer­i­can firms have been blocked by U.S. pres­i­dents on na­tional se­cu­rity grounds since 1990. Of those, Barack Obama blocked two deals dur­ing his two terms. Trump has blocked two in six months.

“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,” Trump said in the or­der re­leased Mon­day evening in Wash­ing­ton.

Broad­com said in a state­ment it was re­view­ing the or­der and that it “strongly dis­agrees that its pro­posed ac­qui­si­tion of Qual­comm raises any na­tional se­cu­rity con­cerns.”

Qual­comm chief ex­ec­u­tive Steve Mol­lenkopf said in a state­ment Tues­day that Broad­com must now per­ma­nently aban­don its takeover at­tempt.

Trump isn’t the only hur­dle to get­ting deals done. Law­mak­ers in Wash­ing­ton are mov­ing for­ward with leg­is­la­tion that would ex­pand the uni­verse of over­seas in­vest­ments that re­quire na­tional se­cu­rity ap­proval from the Com­mit­tee on For­eign In­vest­ment in the U.S. The Trump ad­min­is­tra­tion has en­dorsed the bill, which Sen. John Cornyn, a Texas Repub­li­can, pro­posed with China in mind.

“There’s go­ing to be a wake-up call once this passes,” said Tim­o­thy Adams, pres­i­dent of the Wash­ing­ton-based In­sti­tute of In­ter­na­tional Fi­nance. “It’s a com­pletely dif­fer­ent regime in the U.S.”

China has been the lead­ing source of in­vest­ments re­viewed by CFIUS, which is chaired by Trea­sury Sec­re­tary Steven Mnuchin, though its mem­bers in­clude the heads of more than half a dozen agen­cies. A broad­en­ing of the com­mit­tee’s man­date will raise pro­tec­tive bar­ri­ers by ex­pand­ing its au­thor­ity to re­ject Chi­nese in­vest­ments.

Trump’s or­der came as Broad­com was in the midst of mov­ing its head­quar­ters from Sin­ga­pore to the U.S. Broad­com an­nounced the move in Novem­ber af­ter its chief ex­ec­u­tive Hock Tan met with Trump at the White House. Af­ter the meet­ing, CFIUS ap­proved Broad­com’s takeover of Bro­cade Com­mu­ni­ca­tions Sys­tems, con­di­tioned on the head­quar­ters move, ac­cord­ing to Broad­com.

On Mon­day, Tan went to the Pen­tagon to meet with CFIUS of­fi­cials in a bid to ad­dress their Qual­comm con­cerns. Tan ar­gued that com­bin­ing Broad­com and Qual­comm would fur­ther U.S. in­ter­ests by ad­vanc­ing the de­vel­op­ment of the next gen­er­a­tion of wire­less tech­nol­ogy known as 5G, ac­cord­ing to a per­son fa­mil­iar with the meet­ing. Hours later, Trump is­sued his or­der.

What’s unique about the Qual­comm deal is that the buyer wasn’t Chi­nese. Still, China was fore­most in CFIUS’s mind, ac­cord­ing to a March 5 let­ter from the panel to the com­pa­nies. The U.S. feared that Broad­com would cur­tail in­vest­ment in re­search and de­vel­op­ment, un­der­min­ing Qual­comm’s po­si­tion in de­vel­op­ing 5G and cre­at­ing an op­por­tu­nity for China’s Huawei Tech­nolo­gies Co.

Un­der­scor­ing the risks it saw in the deal, CFIUS in­ter­vened in the mid­dle of a proxy fight rather than wait­ing for a for­mal pur­chase agree­ment.

“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.”

Kennedy at CSIS said that view rep­re­sents “a huge shift” in how CFIUS re­views trans­ac­tions.

“Con­cern has ex­panded from ex­ist­ing tech­nolo­gies with na­tional se­cu­rity im­pli­ca­tions po­ten­tially fall­ing into ri­vals’ hands to en­sur­ing Amer­i­can com­pa­nies con­tinue to in­vest in R&D to main­tain their tech­no­log­i­cal edge,” he said.


Broad­com CEO Hock Tan an­nounced his com­pany’s move from Sin­ga­pore to the U.S last Novem­ber. He ar­gued that the Broad­com and Qual­comm merger would fur­ther U.S. in­ter­ests by ad­vanc­ing the 5G wire­less tech­nol­ogy, but the U.S. saw the deal as a na­tional se­cu­rity threat.


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