Broadcom vs. Qualcomm, and the future of 5G technology

14 March, 2018, 00:38 | Author: Kathy Ellis
  • The tech industry's cozy ties to China may not last

Issuing a Presidential Order to halt the deal, President Donald Trump said there was credible evidence that the controversial acquisition, which would be the largest in the history of the technology sector, would impact the country's national security.

In a letter on March 5, CFIUS wrote to Broadcom's lawyers saying that on March 4, it had issued an interim order prohibiting Broadcom from taking control of Qualcomm by electing a majority of the company's directors, as it proposed to do in a filing with the U.S. Securities and Exchange Commission on February 20. The order further bars Broadcom's nominees for standing for election on Qualcomm's board of directors, the route that Broadcom was pursuing after the board of directors previously voted against Qualcomm accepting Broadcom's deal.

The administration did not detail its national security concerns, but CFIUS last week sent a letter to the attorneys of the two companies saying it was concerned research and development at Qualcomm might atrophy under Broadcom's direction, according to a copy that was reviewed by The Washington Post.

Meanwhile, Qualcomm has been on the other end of a stumbling M&A drama. On Twitter this morning, California Rep. Susan Davis (D, 53rd District) said the decision was "good for San Diego, our regional economy, and national security". "Broadcom strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns", it says in a statement.

It's hard to see a path to this deal taking place following Trump's actions with the executive order.

The letter also touches on Broadcom's plan to borrow up to $106 billion to finance the deal, claiming the increase in debt would likely encourage the company to prioritize short-term gains and reduce long-term investment.

Broadcom is a market leader in chips that control Bluetooth connections.

Analysts said Broadcom can still build heft through smaller deals.

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The U.S. government's CFIUS had legitimate concerns the proposed acquisition would slow down Qualcomm's push into 5G technology. However, the attention wasn't welcomed by Qualcomm's board and over the intervening time between then and now, Broadcom has been convincing Qualcomm shareholders that it would manage the company better and give a better return.

In the recent years, Qualcomm has grown to become one of the biggest competitors to China's Huawei Technologies Co.

Monday evening, President Trump signed an executive order to halt the proposed merger in its tracks.

Broadcom, a Singapore-based company, has increasing ties with China.

Trump's order came as Broadcom was in the midst of moving its headquarters from Singapore to the US Broadcom had announced the move in November after Tan met with Trump at the White House.

"I get the concerns about China taking our intellectual property etc. but I think they are misplaced in this specific case", Rasgon said. The committee last week directed Qualcomm to postpone its shareholder meeting so it could investigate the proposed Broadcom takeover to assess whether the deal poses any national security risk.

CFIUS has already blocked a number of takeovers of U.S. corporations since Mr Trump became president and the use by the White House of its report last week, in justifying this decision, suggests it will be used again in the future as part of the President's policy arsenal.



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