Trump Blocks Broadcom Bid for Qualcomm

Updated: National security cited for the denial.


President Trump has blocked Broadcom’s unsolicited, $117 billion takeover bid for Qualcomm, citing national security concerns. The president acted on the recommendation of the Committee on Foreign Investment in the United States, which cited the possibility of Qualcomm’s chip technology being compromised by Chinese interests, if it were acquired by Singapore-based Broadcom.

The move is the latest by the Trump administration to turn away the acquisition of U.S. companies by Chinese investors.

President Trump issued an order stating “there is credible evidence” that Broadcom’s proposed purchase of San Diego-based Qualcomm “might take action that threatens to impair the national security of the United States.”

There were earlier indications that CFIUS, a federal interagency panel, would turn down the deal, with pressure coming from the Department of Defense. The Treasury Department, which also is represented on the panel, was reportedly in favor of the takeover, especially since Broadcom pledged to relocate its headquarters to the U.S., something it planned to do on April 3, although that commitment may not occur now.

The administration’s decision also could boost Qualcomm’s proposed acquisition of NXP Semiconductors, which has been lingering without conclusion for months, as the chip companies tried to satisfy antitrust regulators, especially those in the European Union, and as Qualcomm fought off the Broadcom bid.

Qualcomm recently increased the price it will pay for NXP’s shares, from $110.00 to $127.50 per share in cash, which met with approval by NXP shareholders.

Earlier this month, CFIUS requested that Qualcomm postpone its annual shareholder meeting for 30 days as it investigated aspects of the Broadcom bid. Qualcomm shareholders were being asked to place six Broadcom nominees on the Qualcomm board of directors, giving Broadcom a majority on the board. Qualcomm complied with the government’s request, moving its annual meeting to April 5.

Paul Jacobs, son of Qualcomm founder Irwin Jacobs, recently agreed to give up his post as executive chairman of the board. He previously served as the chip company’s CEO from 2005 to 2014. The board discontinued the executive chairman position. Paul Jacobs remains a director of Qualcomm. Jeffrey Henderson, an independent director of Qualcomm since 2016, was named non-executive chairman.

While the proxy battle with Broadcom is ended, Qualcomm still has multiple challenges to face. Completing the NXP acquisition is near the top of the list, along with the chip company’s legal fights with Apple and the Federal Trade Commission. Qualcomm’s revenue has stagnated in recent years. Its profitability has been dented by more than $3.4 billion in penalties paid to antitrust regulators in China, the European Union, South Korea, and Taiwan.

In an ironic twist, the last antitrust hurdle for the merger of NXP and Qualcomm is in China.

CFIUS stood in the way of Xcerra, an automated test equipment vendor, being acquired by Hubei Xinyan Equity Investment Partnership, a private-equity concern with ties to the government of the People’s Republic of China. Xcerra and Hubei Xinyan withdrew their application to CFIUS when it became clear the government panel would not approve the transaction. Xcerra has customers among chipmakers that supply crucial components to the Defense Department, among other government agencies. Those customers include Analog Devices, Broadcom, Intersil, Maxim Integrated Products, Microchip Technology, and Texas Instruments.

Last year, CFIUS recommended denying the $1.3 billion acquisition of Lattice Semiconductor by Canyon Bridge Capital Partners, another private-equity firm with ties to government-backed investment firms in China. President Trump subsequently blocked that deal, citing national security interests. Lattice lobbied for approval of the transaction, saying it does not supply chips to the American military, unlike its competitors at Intel and Xilinx.

In early 2018, the Trump administration stopped the $1.2 billion acquisition of Dallas-based MoneyGram International by Ant Financial Services Group of China. MoneyGram is a money transfer company.

Xinhua, the official news agency of China, said of that decision, “China and the United States are about to ride a bumpy journey in trade in 2018 if the U.S. Government goes its own way, and retaliatory measures by China could be on the table.”

More recently, President Trump proposed a 25% tariff on imported steel, exempting only steel produced in Canada and Mexico. The move was seen as a direct challenge to China’s steel industry, which the president has blamed for harming the U.S. steel business.

Congress is considering expanding the purview of CFIUS through a bill called the Foreign Investment Risk Review Modernization Act.

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