President Trump halts Broadcom takeover of Qualcomm

(Reuters) – U.S. President Donald Trump on Monday blocked semiconductor maker Broadcom Ltd’s (AVGO.O) proposed takeover of Qualcomm Inc(QCOM.O) on grounds of national security, ending what would have been the technology industry’s biggest deal ever.

FILE PHOTO: A sign to the campus offices of chip maker Broadcom Ltd, who announced on Monday an unsolicited bid to buy peer Qualcomm Inc for $103 billion, is shown in Irvine, California, U.S., November 6, 2017. REUTERS/Mike Blake/File photo

The presidential order to block Singapore-based Broadcom’s $117 billion bid for San Diego-based Qualcomm reflected concerns about the United States’ ability to set the technology standards for the next generation of mobile cell phones in the competition with Chinese companies.

San Diego-based Qualcomm has emerged as one of the biggest competitors to China’s Huawei Technologies Co in the sector, making Qualcomm a prized asset.

Qualcomm had earlier rebuffed Broadcom’s $117 billion takeover bid, which was under investigation by the U.S. Committee on Foreign Investment in the United States (CFIUS), a multi-agency panel led by the U.S. Treasury Department that reviews the national security implications of acquisitions of U.S. corporations by foreign companies.

A source familiar with CFIUS’ thinking had said that, if the deal was completed, the U.S. military was concerned that within 10 years,“there would essentially be a dominant player in all of these technologies and that’s essentially Huawei, and then the American carriers would have no choice. They would just have to buy Huawei (equipment).”

In a letter to the companies on March 5, CFIUS expressed concerns that Broadcom would not be willing to fund the research needed to maintain Qualcomm’s strong position on so-called 5G technology, a forthcoming standard for wireless data networks, leaving the U.S. with nowhere but China to turn for such technology.

CFIUS also said that Qualcomm has a number of military contracts with the U.S. Department of Defense.

Shares of Broadcom rose less than 1.0 percent to $264.10 in after hours trade while Qualcomm fell 4.3 percent to $60.14. Neither company responded immediately to a request for comment.

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The move by Trump to kill the deal comes only months after the U.S. president himself announced Broadcom’s decision to move its headquarters to the United States and called it“one of the really great, great companies.”

This is the fifth time ever a U.S. President has blocked a deal based on CFIUS objections and the second deal Trump has stopped since assuming office.

“The proposed takeover of Qualcomm by the Purchaser (Broadcom) is prohibited, and any substantially equivalent merger, acquisition, or takeover, whether effected directly or indirectly, is also prohibited,” the presidential order released on Monday said.

The order issued by the White House cited“credible evidence” that led Trump to believe that Broadcom taking control of Qualcomm“might take action that threatens to impair the national security of the United States.”

Trump’s move accelerated a decision that appeared likely after CFIUS told Broadcom in a letter on Sunday that its investigation“so far confirmed the national security concerns.”

The U.S. Treasury Department letter was“obviously a poison pill,” Jim Lewis, a CFIUS expert at the Center for Strategic and International Studies, said before the Trump order. He described the CFIUS communication to Broadcom as“unprecedented.”

The semiconductor industry is racing to develop chips that power so-called 5G wireless technology, allowing the transmission of data at faster speeds.

Broadcom had struggled to complete its proposed deal to buy Qualcomm which had cited several concerns including the price offered and potential antitrust hurdles.

The presidential decision to block the deal cannot be appealed. However, it is not clear what rules Broadcom would have to follow if it goes ahead with announced plans to move its headquarters to the United States.

Reporting by Diane Bartz and Chris Sanders in Washington; Supantha Mukherjee; Pushkala Aripaka in Bengaluru; Greg Roumeliotis in New York and Steve Nellis in San Francisco; Editing by Peter Henderson and Clive McKeef

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