The deal between Broadcom and Qualcomm isn't taking place

Mar 14, 2018, 00:23
The deal between Broadcom and Qualcomm isn't taking place

Treasury Secretary Steven Mnuchin, who chairs CFIUS, said: "This decision is based on the facts and national security sensitivities related to this particular transaction only and is not meant to make any other statement about Broadcom or its employees, including its thousands of hard working and highly skilled USA employees".

Broadcom was trading up about 1.1 percent Tuesday morning, while Qualcomm was down 4.8 percent at $59.75. And it could have an easier time buying US targets if it goes through with plans to redomicile in the United States. The deal would have been the biggest technology sector takeover on record.

Last week, it was speculated that Intel could take advantage of the offer to bid for Broadcom. The deal would make Broadcom the third-biggest maker of microchips, behind only Intel and Samsung.

A deal between Qualcomm and Broadcom could have given Huawei the chance to take over the top spot eventually.

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Tan bought California-based companies Broadcom for $37 billion in a leveraged deal in 2015 and Brocade Communications in a $5.5 billion deal two years later.

Huawei's involvement in 5G technology could be inevitable because of the global collaboration required to develop the networks. Mario Morales at IDC told the BBC that every major country around the world is in a race to deliver 5G technology.

Qualcomm previously rejected Broadcom's highest bid of $121 billion, before the bid was lowered to $117 billion in February, after Broadcom said that Qualcomm does not value its shareholders interest. The company is likely to focus on closing its pending acquisition of NXP Semiconductors NV (NASDAQ: NXPI) as part of a path towards rebuilding credibility with the investment community.

Broadcom has said it is reviewing the presidential order, adding that it "strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns".

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Broadcom meanwhile is working to address the concerns that its acquisition will pose a security risk.

Fast forward to just-before-now, when Qualcomm asked the Committee on Foreign Investments in the United States, or CFIUS, to rule on whether the Broadcom merger represented a threat to national security. "Given well-known U.S. national security concerns about Huawei and other Chinese telecommunications companies, a shift to Chinese dominance in 5G would have substantial negative national security consequences for the United States". Broadcom played its own game of carrot and stick, with an improved share price offer, but also offered its own proposed board of directors slate to shareholders in a move meant to launch a hostile takeover. In September, Trump blocked a Chinese state-owned company from acquiring an American semiconductor firm.

A source familiar with CFIUS had said that, if the deal was completed, the United States military was concerned that within 10 years there would be a dominant player in the sector and that's essentially Huawei.

The chipmaker's cooperation with the investigation was also called into question, with a clash between Broadcom and federal investigators being suggested in a US Treasury Department letter, which could have impacted on the executive order.

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