Trump blocks Broadcom takeover of Qualcomm

Marie Harrington
March 14, 2018

(Reuters) - Singapore-based Broadcom Ltd AVGO.O is planning to scrap its bid for Qualcomm Inc QCOM.O , after U.S. President Donald Trump blocked the chipmaker's proposed acquisition on national security grounds earlier this week, although it will press on with its plan to move its base to the United States, according to sources familiar with the matter.

Yesterday's White House order strikes a blow for Broadcom, whose CEO Hock Tan appeared with the president in the White House in early November to jointly announce the company's plan to redomicile to the U.S. But the order is likely to be welcomed by chipmaking giant Intel, which was reportedly anxious about how the merger of Broadcom and Qualcomm could have threatened its own position in the smartphone processor and data center markets.

The deal, spearheaded by CEO Hock Tan, would have created the world's No. 3 semiconductor company with a leading market share in smartphones, auto electronics and industrial internet devices.

"They threw the book at Broadcom because they're anxious about 5G", said Ruben Roy, an analyst at MKM Partners LLC.

Why Is The U.S. Opposed To The Deal?

Its nominees for Qualcomm's board were winning with more than half of the proxy votes counted just two days before a shareholder meeting was to be held.

"He looks for value".

Any weakening of that position, the letter explained, might leave Chinese tech giants such as Huawei to take the lead on standardisation in the next iteration of mobile technology. "He buys franchises, things that he believes have competitive modes, long visibility on revenues, opportunities for operational improvements". Shares of Intel, a U.S. competitor, also rose. Qualcomm shares fell 4.3 per cent.

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President Donald Trump hugs Broadcom CEO Hock Tan after he announced the repatriation of his company to the United States on November 2. This will indirectly benefit Huawei, which is also in a race to develop the 5G wireless technology. Thus it appears that the concern stems mainly from the fear that Qualcomm's status as a world leader in the emerging 5G standard may be threatened.

The growing influence of Huawei is a major factor killing the Qualcomm-Broadcom deal. Xilinx makes chips used for wireless communication and Mellanox's products connect servers and storage systems, complementing Broadcom's broad portfolio.

For smaller deals, however, Broadcom has a lot of firepower: about $11 billion in cash and the potential to generate almost $9 billion per year in free cash flow, according to analysts' estimates. Xilinx has a market value of almost $20 billion.

Neither company was immediately available for comment.

The letter from the Treasury was based on a review by the Committee on Foreign Investment in the United States, an inter-agency panel that vets deals between foreign and American companies.

Broadcom "strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns", it said in a statement, which didn't make clear whether it will try to appeal the decision.

"But that really hinges on completely severing the foreign ownership connection, and they would probably have to endure a pretty deep dive on the first deal".

Other reports by TheSundaySentinel

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