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  • Thierry Spanjaard

Qualcomm - Broadcom merger blocked by US authorities!

United States President Donald Trump just issued an executive order blocking Singapore-based Broadcom from acquiring Qualcomm, which is headquartered in the US, in a deal that would have been worth more than US$ 117 billion (EUR 95 billion), according to Bloomberg. Trump acted on a recommendation by the Committee on Foreign Investment in the US (CFIUS), which reviews acquisitions of American firms by foreign investors. The order underscores the tough stance the Trump administration is taking on foreign takeovers of US technology firms with sentences like “Broadcom (…) might take action that threatens to impair the national security of the United States,” “the proposed takeover of Qualcomm by the Purchaser (Broadcom) is prohibited” and “the Purchaser (Broadcom) and Qualcomm shall immediately and permanently abandon the proposed takeover.”

Analysts, quoted by CNBC, comment that one of the actual reasons is that Broadcom would have cut significantly Qualcomm investments in 5G, thus threatening US lead on this topic and allowing Huawei to take stronger positions. The US government considers Huawei to be a major competitive threat in the development of 5G. Also, there could be national security concerns with chips manufactured by a Qualcomm under Broadcom control, having in mind the relation between Broadcom and so-called “foreign entities.” This statement is consistent with Donald Trump’s position to make US tech companies stronger and stronger.

According to the CFIUS, a Broadcom acquisition of Qualcomm could have undermined Qualcomm's leadership in 5G wireless technology, allowing China's Huawei to become the dominant 5G provider in the world.

The project started on November 6, 2017, when Broadcom issued an unsolicited bid for US$ 70 (EUR 56.8) per share for Qualcomm, leading to a US$ 130 billion (EUR 105.5 billion) deal, says ZDNet. Then, Qualcomm qualified Broadcom’s offer as "significantly undervalued," and rejected the offer altogether on November 13, 2017. From this time, Broadcom attempted to lure Qualcomm investors and to suggest “independent” directors for Qualcomm board. Broadcom added they were considering relocating their headquarters to the US.

On February 6, 2018, Broadcom pledged US$ 82 (EUR 66.5) per Qualcomm share, made up of US$ 60 (EUR 48.7) in cash and US$ 22 (EUR 17.8) in Broadcom stock. This proposal, although qualified by Broadcom as “best and final offer,” met Qualcomm board rejection.

At the same time, Qualcomm’s offer for NXP Semiconductors, launched in 2016, was still ongoing, which led Qualcomm management to increase their offer for NXP to US$ 127.50 (EUR 103.5) per share from its original bid of US$ 110 (EUR 89.3) per share, leading to a valuation of US$ 44 billion (EUR 35.7 billion) for NXP. Consequently, on February 21st, Broadcom lowered its proposal to US$ 79 (EUR 64.1) per Qualcomm share, made up of US$ 57 (EUR 46.3) in cash and US$ 22 (EUR 17.8) in Broadcom stock, citing “Qualcomm's NXP machinations” as the reason for the change.

Qualcomm management was already concerned that handing over full control of the licensing business would cause antitrust issues and regulatory problems. The company filed a voluntary request with the Committee on Foreign Investment in the US (CFIUS) to investigate the acquisition's potential US national security issues.

In its conclusions, the CFIUS listed several issues, including Broadcom's reputation for cutting research spending and potential national security risks.

Now, the latest news is that Intel may be considering a bid for Broadcom… The story is not over…

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