Stepping into the increasingly wild saga that has been Broadcom’s efforts to purchase Qualcomm, the US government is now weighing in by issuing a new order to block the merger of the two companies. Citing national security concerns with the Singapore-based Broadcom acquiring the US-based Qualcomm, President Trump issued an order under the Defense Production Act of 1950 to prohibit the proposed acquisition or any similar transaction, effectively ending Broadcom’s acquisition efforts.

Given what would have potentially been the largest acquisition to date in the technology industry, Broadcom’s acquisition efforts had already attracted the attention of Committee on Foreign Investment in the United States (CFIUS), who was investigating the buyout. However in exercising his own authority based on the CFIUS’s recommendations, the President has blocked the merger on national security grounds, citing that through their ownership of Qualcomm, Broadcom “might take action that threatens to impair the national security of the United States.”

As a result of the presidential order, Broadcom’s purchase efforts are on hold for the time being, if not forever. The order requires the two companies to immediately stop any and all merger activity, and to unwind any efforts they’ve taken thus far, reporting to the CFIUS on their progress. Furthermore the candidates that Broadcom was running for Qualcomm’s board of directors are barred from participating in that election, and Qualcomm cannot accept their nominations.

The President's order does not go into detail about the national security concerns he and the CFIUS have with the potential deal. But the Washington Post, citing a letter from the CFIUS sent to the companies’ attorneys sent over the weekend, notes that “it was concerned research and development at Qualcomm might atrophy under Broadcom's direction” and that Qualcomm rivals such as Huawei “might become much more dominant around the world” as a result.

As the framework blocking the acquisition is a presidential order, it cannot be appealed and this block is seemingly permanent. However as Broadcom has already been going through great lengths to acquire the company, including planning to redomicile to the US so that the acquisition was no longer a foreign deal, it might yet prove too early to rule them out entirely.

Update 3/14: Broadcom has formally ended its efforts to acquire Qualcomm, noting that the offer has been "withdrawn and terminated." Interestingly however, the company still intends to go ahead with their redomiciliation plans, which were originally only undertaken in order to improve the chances of the buyout being approved.

Source: The White House

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  • darkich - Tuesday, March 13, 2018 - link

    They can't because it would be anti-competitive I.E. not allowed by the regulators.
    Had Broadcom acquired it, then Intel actually would have a chance to negotiate.
    Reply
  • Taric25 - Tuesday, March 13, 2018 - link

    Funny how people had the same concerns when Intel bought Altera, famous for FPGA, thinking that it would atrophy research and development in FPGA. That hasn't happened. Altera is now Intel FPGA and is still doing quite well in the market and still giving Xilinx a run for their money. (Watch, AMD will see this comment and purchase Xilinx. ;-) j/k )

    I don't see R&D atrophy in Qualcomm's future if Intel purchases them. In fact, I see Thunderbolt 3 and Qualcomm Quick Charge having some sort of fusion and compatibility with USB-C interoperability, if they merged.
    Reply
  • Yojimbo - Tuesday, March 13, 2018 - link

    From what I can figure out, based on very little information, the issue here wasn't that Broadcom isn't an American company. After they redomicile they will be as American as any other global corporation. They are made up of spin offs of American companies and mergers with American companies. I have read that the board members are mostly American citizens. I think the fact that they are domiciled in Singapore currently was used as a way of blocking the merger for another reason.

    That reason is most likely that Broadcom planned to operate Qualcomm in a different manner than Qualcomm has been operating. Broadcom proposed to cut various R&D expenditures to increase margins. The U.S. government seemingly became concerned that such a cut in R&D could affect America's influence and ability to securely rely on future mobile technology. They are worried that the U.S. government, military, and industry would have to rely on technology from Huawei, based in China.

    So the government has stepped in to encourage Qualcomm to operate in perhaps an inefficient way, or at least in a way against the free market, because they fear the situation could have future national security and macroeconomic repercussions. I gotta say I have mixed feelings on that. It seems like a rather speculative move, and I'm convinced that in the long run, a multitude of decisions made like this would be a bad thing.

    I am not sure of this assessment, though, because from what I read it sounded like Broadcom wanted to cut R&D projects on things like neuromorphic computing, and not R&D towards Qualcomm's core businesses such as mobile technology.
    Reply
  • Spunjji - Tuesday, March 13, 2018 - link

    I'm agreed with the broad premise here - that the reason given for blocking the merger is not the true reason. I also think it's a good idea. In the EU this would be blocked for anti-competitive reasons so the US has found a way to do effectively the same. Reply
  • HStewart - Tuesday, March 13, 2018 - link

    I believe government step is not related to computer industry directly. It appears from the following link that Qualcomm and Government has contracts including home land security contract. So the president is correct that Broadcom acquiring Qualcomm would be potential natural security.

    http://government-contractors.insidegov.com/l/8710...
    Reply
  • jospoortvliet - Tuesday, March 13, 2018 - link

    I share your ambivalence toward this interference in the free market. Then again I am annoyed by the short term milking vision that seems to be behind the take over - that doesn't benefit the industry or customers or, indeed, the US. Reply
  • iwod - Tuesday, March 13, 2018 - link

    I think the more important question is, how long does it take for Broadcom to move back to US. Reply
  • HStewart - Tuesday, March 13, 2018 - link

    In addition they would either have to terminate Qualcomm government contract pertaining to security or at minimal make sure foreign assets do not have access to the information.

    Just moving office back to US is not enough
    Reply
  • aggiechase37 - Tuesday, March 13, 2018 - link

    Hey, wow! A news story that just gives the news! No partisan slant. Great work Anandtech! Seriously! Reply
  • FreckledTrout - Tuesday, March 13, 2018 - link

    If only this was the standard for "news". Reply

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