Broadcom backs off Qualcomm bid after Trump intervenes

US President Donald Trump

US President Donald Trump

US President Donald Trump on Tuesday blocked Singapore-based company Broadcom's $117 billion bid for chip maker Qualcomm, citing national security concern.

The Committee on Foreign Investment (CFIUS) has said that it is anxious that Broadcom would slash research and development at Qualcomm.

That could mean a significant reduction in spending on 5G research and development at Qualcomm, which totaled $5.5 billion in its most recent financial year.

Well before Qualcomm Inc. confronted a hostile takeover bid from Broadcom Ltd.

If that should happen, a Chinese company like Huawei, which the committee has previously expressed concerns about, could step in and become dominant as 5G technology and standards and practices are developed and implemented.

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As Reuters reports, one of the more influential figures to voice their support of Broadcom's expanding influence in the President Trump himself.

Had it gone through, the acquisition would have been the largest technology deal in history.

An investigation of the deal by the Committee on Foreign Investment in the US, which reviews purchases of American businesses by foreign investors, confirmed national security threats related to the acquisition by Broadcom, the Treasury Department said in a letter to both companies made public March 12. Chinese regulators could just as easily block an American company from trying acquire a Chinese-based company over concerns for its own national security. The company was hoping that their current process of moving its headquarters back to the US would be enough to alleviate the concerns put forth by the federal government.

"They honestly believe they are helping to protect national security by doing this", Fleming said.

Qualcomm's board of directors unanimously rejected an acquisition proposal from Broadcom last month, saying that they are turning down the latter's $121 billion bid on the grounds that the offer undervalued the business, and also that any takeover would face antitrust hurdles. Broadcom aimed to win control of the board so it could advance with its hostile takeover. While Trump's order bars Broadcom's nominees from remaining on the slate, Qualcomm can't ignore the signal investors sent when the voting was open to alternatives. "He's of the view that there is a lot of value to be extracted from this industry", said Bernstein analyst Stacy Rasgon.

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