Washington: US President Donald Trump today blocked a planned $117 billion takeover of chipmaker Qualcomm by Singapore-based rival Broadcom for national security reasons, scuttling what would have been the biggest technology deal ever amid concerns that it would allow China to take the lead in the booming market of producing chips.
Trump, in his executive order, said there is “credible evidence” that leads him to believe that if Broadcom Limited took control of the US-based Qualcomm it “might take action that threatens to impair the national security of the US”.
As such, Broadcom and Qualcomm “shall immediately and permanently abandon the proposed takeover”, ordered the US President.
“The proposed takeover of Qualcomm by the Purchaser is prohibited, and any substantially equivalent merger, acquisition, or takeover, whether affected directly or indirectly, is also prohibited,” Trump said in the executive order issued today.
The deal would have created the world’s third-largest maker of microchips, behind Intel and Samsung. It would also have been the biggest takeover the technology sector had ever seen.
Broadcom has pursued a tie-up with its fellow chip maker for months. The takeover, which would have been the largest transaction the technology industry had ever seen, was tripped up by concerns that it posed a threat to American competitiveness in mobile technology by putting one of the largest mobile chip makers in the U.S. under the control of a company based in Asia.
If research and development at Qualcomm foundered under Broadcom, the administration was concerned China-based Huawei Technologies would have an opening to become an even bigger player in the booming market of producing chips that power smartphones, smart home gadgets and other mobile devices.
Broadcom said in a statement that it is reviewing the presidential order. “Broadcom strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns,” the company said.
Trump’s decision comes after Broadcom said last Friday that it would ask its shareholders to approve its plan to redomicile to the US.
In such a scenario, Broadcom — which currently works under the laws of Singapore — would have been considered as an American company and thus its proposed $117 billion would have been considered outside the preview of a federal agency — the Committee on Foreign Investment in the United States (CFIUS) that review the foreign deal.
In a letter, the CFIUS had confirmed the national security concerns. Last week, the CFIUS issued an interim order to Qualcomm directing it to postpone its annual stockholder’s meeting and election of directors by 30 days.
Treasury Secretary Steven Mnuchin, in his capacity as the chair of the CFIUS, said Trump’s decision was consistent with the administration’s commitment to take all actions necessary to protect the national security of the US.
“This decision is based on the facts and national security sensitivities related to this particular transaction only and is not intended to make any other statement about Broadcom or its employees, including its thousands of hardworking and highly skilled US employees,” Mnuchin said.
“The CFIUS process focuses exclusively on identifying and addressing national security concerns. This focused mandate reinforces our commitment to welcoming foreign investment, while at the same time reinforcing our commitment to protecting national security,” he added.
China is said to be the main reason behind Trump’s decision, US daily ‘The New York Times’ said.
Last week, several US lawmakers had called for stopping Broadcom’s takeover of Qualcomm.
Congressman Duncan Hunter said that the merger would “damage American security” and had pointed at Broadcom’s “increasing” ties with China to highlight his reservation about the deal.
“This should concern us as a nation. These ties were most recently reflected in the agreements Broadcom signed with HBC, Inspur and StarTimes. China has a finely honed capability to access the technology of companies such as Broadcom, along with that of their subsidiaries and acquisitions,” he said.
Hunter said the merger would make Broadcom the third largest chipmaker in the world, “giving them control over a major portion of the supply chain, which is critical to the vital communications components”.
Senator Tom Cotton said that Qualcomm’s work is too important to the US’ national security to let it fall into the hands of a foreign company-and in a hostile takeover no less.
“Its hard to see a good reason why we should hand over one of our leading computer-chip makers, and thereby give Chinese companies a leg-up in the race to develop 5G and the next generation of technology. Better to keep it in American hands and protect American national security,” Cotton said.