Trump Blocks Biggest Tech Deal In History Over National Security Risks

Trump Blocks Biggest Tech Deal In History Over National Security Risks

Trump's order came as Broadcom was in the midst of moving its headquarters from Singapore to the U.S. It was seeking to gain majority control of San Diego-based Qualcomm's board to advance its hostile takeover.

"The proposed takeover of Qualcomm by the Purchaser [Broadcom] is prohibited, and any substantially equivalent merger, acquisition, or takeover, whether effected directly or indirectly, is also prohibited", the order said on Monday.

We knew that Broadcom's hostile takeover of Qualcomm was on thin ice, especially considering that the latter thought that the former's offers have greatly undervalued the company. "While the United States remains dominant in the standards-setting space now, China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover".

The attempted takeover threatened Qualcomm leadership in developing the next generation of wireless technology.

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. Qualcomm did not immediately respond to a request for comment.

The decision came despite Broadcom's pledge to keep the USA a leader in 5G cellular in a response to the CFIUS letter last week.

In an order released Monday night, President Trump said he'd been presented with "credible evidence" by CFIUS that the transaction could threaten US security.

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While Broadcom shares were holding steady in the wake of the announcement, investors were less enthusiastic about Qualcomm's chances, and shares dropped 4.5 per cent after hours. Qualcomm had repeatedly rejected Broadcom's bids, citing national security concerns and a belief that the deal undervalues the company.

In another letter released before Monday's meeting, CFIUS said its national security concerns had been "confirmed" and hinted that it would recommend to the president that he block the deal.

This isn't the first time that President Trump has used his power to block foreign investment into a USA company.

Treasury Secretary Steven Mnuchin, in his capacity as the chair of the CFIUS, said Trump's decision was consistent with the administration's commitment to take all actions necessary to protect the national security of the US.

In a letter to the companies on March 5, CFIUS expressed concerns that Broadcom would not be willing to fund the research needed to maintain Qualcomm's strong position on so-called 5G technology, a forthcoming standard for wireless data networks, leaving the United States with nowhere but China to turn for such technology. Once the move is done, Broadcom could argue that CFIUS does not have jurisdiction, the second expert said.

Broadcom can not appeal against the US presidential decision that effectively blocked the largest tech deal.

Broadcom said on Monday it intends to complete the process of becoming a U.S. corporation by 3 April, before any deal with Qualcomm would be agreed.

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