Trump blocks biggest ever tech deal over 'national security' concerns

14 March, 2018, 00:38 | Author: Teresa Adams
  • QUALCOMM, Inc. (QCOM): Trump's Interruption Likely to Have Significant Negative Ramifications

Qualcomm quickly spurned its unsolicited suitor and continued to resist even after Broadcom raised its original offer from $103 billion. (NASDAQ:QCOM) by giving their deal a firm "no". The bell is tolling on it as a result of it having been declared to risk impairing "the national security of the US".

According to reports, the U.S. government doesn't want to lose to China, if Singapore-based Broadcom took over the San Diego-based Qualcomm. Shares of Broadcom rose less than 1 percent.

Qualcomm shares sank 4.4 per cent to $60.04 in the after-market.

Had it gone through, the acquisition would have been the largest technology deal in history, the New York Times said in a report.

By redomiciling to the U.S., Broadcom may no longer have been subject to CFIUS scrutiny, legal experts told Reuters.

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The $140bn (£100bn) deal would have created the world's number three chip maker after Intel and Samsung.

What's unusual is the timing of both the warning and the executive order, which came before Qualcomm and Broadcom ever formally agreed to a deal.

Arbitrageurs seemed confident the Qualcomm-NXPI deal would close today, with NXPI prepared to open at over $123.50, but China has not yet approved the transaction, and now has no reason to do so. Nearly every major business and consumer electronics manufacturer uses Qualcomm's technology as brains for their devices.

Their reasoning was that Tan has a reputation for running his companies as a "roll-up", buying a monopoly position in key technologies, cutting research and raising prices.

"Reduction in Qualcomm's long-term technological competitiveness and influence in the standard setting would leave an opening for China to expand its influence on the 5G standard-setting process". Ltd., angling to dominate the market for 5G networking. Had that happened, Qualcomm's fate would have been sealed as the new board could have then voted to sell the company to Broadcom.

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Two analysts said Xilinx and Mellanox would be a good fit for Broadcom, though not as transformational as Qualcomm. Such a huge semiconductor company was enough to worry Intel intc , which the Wall Street Journal reported last week was considering buying Broadcom if the deal actually went through.

Mnuchin added that it "is not meant to make any other statement about Broadcom or its employees, including its thousands of hardworking and highly skilled US employees". "If it's a Chinese investor the bar is going to be high". Intel could also be hurt in a trade war, as I wrote March 8, because it has major operations in China.

"It is not entirely clear how establishing a US domicile would affect CFIUS' view of its jurisdiction over the proposed transaction", USA law firm Kirkland & Ellis LLP, which is not involved in the deal, wrote in a note to clients on Friday, Reuters reports. Approval would be positive for the tech market, but a rejection would be very negative. As the United States and China maneuver for control over advanced technologies, it seems that the White House has deemed Qualcomm too important to have its R&D potentially slashed by Broadcom.

This is the second deal the USA president has blocked on national security grounds since taking office, following the $1.2bn sale of money transfer company Moneygram to China's Ant Financial, Alibaba's digital payments subsidiary.

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