Game over for Broadcom or will international ripples turn the tide?

The dramatic saga of what would have been the world’s most expensive technology merger has been stopped in its tracks by President Trump, issuing an order to block Broadcom’s $117 billion takeover of Qualcomm on the grounds of national security.

The industry cannot claim this was unexpected, as the race to 5G gold, and more specifically doing anything in its power to trip up China from claiming these treasures first, is not exactly a national US secret. Yet such rapid intervention, only days after the Committee on Foreign Investment in the US (CFIUS), has knocked the wind out of the tech industry. While many were solely focused on this deal, President Trump is perhaps firing the first shots in a trade war, as his policy elsewhere seems to suggest, with steel and solar panel tariff introductions.

The President has concluded Broadcom’s bid “might take action that threatens to impair the national security of the US”, at a time when similar claims of security concerns regarding imported goods have been made, instances which may still result in exemptions should discussions on trade relationships prove beneficial to the US economy. This suggests the most marginal possibility Broadcom’s pursuit has not been fully extinguished, and talks can reignite some kind of deal – although we are really clutching at straws here.

Not only does Trump’s order mark the first time a US President has cited threats to national security as reason for pre-emptively blocking M&A activity, before a deal had even been agreed, but it threatens to trigger copycat situations the world over – making it particularly tricky for US firms to complete acquisitions overseas. Creating a cross-industry political minefield, with the potential to damage future M&A dealings between US and international companies, could be a sticking point in ongoing discussions, but not one Trump’s initial order has addressed.

Nevertheless, upon review of recommendation from CFIUS, the President believes the void created by the merger is dangerous enough to warrant an executive order – on the premise it would allow Chinese firms to flourish in the development of 5G technologies and surpass the US. Broadcom has a reputation for building its empire as a purchaser rather than through organic R&D. In the case of Qualcomm, this has raised concerns over Broadcom’s intentions for internal cuts within the US chip maker – essentially gifting Chinese giant Huawei the 5G crown jewels.

In the meantime, the order states all 15 individuals listed as potential candidates by Broadcom are disqualified from standing for election as directors of Qualcomm, and Qualcomm is prohibited from accepting the nomination of votes for any of the candidates.

Broadcom has responded by saying it “strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns.”

Israeli silicon and networking equipment maker Mellanox Technologies and San Jose-based Xilinx have been cited as two initial favorites to be next on the hostile Broadcom flight path.