President Donald Trump Monday blocked Broadcom Ltd.’s $117 billion hostile bid for Qualcomm Inc. QCOM -0.35% over national security concerns, quashing what could have been the biggest-ever tech deal.
“The proposed takeover of Qualcomm by the Purchaser is prohibited, and any substantially equivalent merger, acquisition, or takeover, whether effected directly or indirectly, is also prohibited,” says the presidential order, signed by Mr. Trump.
A U.S. national-security panel had signaled it might imminently recommend Mr. Trump take just the action he did. The Committee on Foreign Investment in the U.S., known as CFIUS, told lawyers for the companies in a letter dated Sunday that Singapore-based Broadcom had repeatedly violated one of its orders in its pursuit of Qualcomm and that its investigation “so far” confirmed the national-security risks it had previously identified with the proposed merger.
CFIUS already said it was worried that Broadcom, which has a reputation as a cost-cutting behemoth, would stymie research and development at Qualcomm, the San Diego-based chip maker, and weaken it against foreign rivals racing to develop next-generation wireless technology, such as China’s Huawei Technologies Co.
In the letter, a Treasury official says that CFIUS accelerated its investigation into the bid in light of Broadcom’s violations of the panel’s earlier order. That had required the company to provide CFIUS with five business days’ notice before taking any action toward redomiciling in the U.S.
As a U.S. company, Broadcom could have argued that its deal fell outside of the panel’s jurisdiction.
Broadcom has been working more quickly to make the shift to the U.S. following a CFIUS decision March 4 to investigate its bid for Qualcomm.
Broadcom shares were up 3.6 % Monday to $262.84, and Qualcomm was down .35% to $62.81.
CFIUS had given the companies a March 12 deadline to submit any further information “as the parties will likely not have an additional opportunity to submit information thereafter,” according to the Sunday letter signed by an official at the Treasury, which chairs CFIUS.
In the absence of any information that changes CFIUS’s assessment of the potential deal’s national-security risks, the panel “would consider taking further action, including but not limited to referring the transaction to the president for a decision,” the letter says.
Read the Letter
The letter was disclosed by Qualcomm in a Monday Securities and Exchange Commission filing.
Typically, when CFIUS decides to recommend against a deal, it will informally give parties an opportunity to withdraw their plans.
If they refuse, which is highly unusual, CFIUS can send the deal to the president to make a final determination, but presidents rarely side against the committee.
In one recent precedent, President Donald Trump in September blocked Chinese government-backed Canyon Bridge Capital Partners’ attempt to buy Portland, Ore.-based Lattice Semiconductor Corp. In an unusually public fight to try to save their deal, the companies made the rare, direct appeal to Mr. Trump. He sided with CFIUS’s earlier negative recommendation.
Broadcom appeared to be laying the groundwork to get ahead of potential national-security concerns and to win favor with Mr. Trump even before it launched its initial bid for Qualcomm.
In a televised appearance last November with Mr. Trump at the White House, Broadcom Chief Executive Hock Tan announced plans to redomicile his Singapore-based company to the U.S.
Broadcom on March 6 applied for a court hearing in Singapore regarding the redomiciliation plan, public records show.
That hearing took place March 9 and afterward Broadcom said in a Friday SEC filing that the Singapore court had “directed” it to on March 23 hold a special shareholder meeting during which the redomiciliation vote would occur.
The Treasury official said in the letter that Broadcom’s March 9 action followed conversations with and written communications from CFIUS the day prior informing the company that its March 6 court application didn’t comply with the panel’s order and that its planned participation in the March 9 hearing would also violate its order.
In a letter March 5 to the companies’ lawyers, CFIUS said, in part, “Given well-known U.S. national security concerns about Huawei and other Chinese telecommunications companies, a shift to Chinese dominance in 5G [next-generation cellphone technology] would have substantial negative national security consequences for the United States,” a CFIUS official wrote in a March 5 letter to the companies’ lawyers.
In a Friday letter to members of Congress, Broadcom pledged to make the U.S. the leader in 5G development.
The risk that regulators or CFIUS might block a Broadcom-Qualcomm tie-up has weighed on Broadcom shares throughout the haggling between the two companies, analysts said.
The price often has gone up when news suggested a deal was less likely.
—Cara Lombardo and Ted Greenwald contributed to this article
Write to Kate O’Keeffe at firstname.lastname@example.org
Appeared in the March 13, 2018, print edition as ‘Trump Blocks Broadcom Deal.’