Broadcom shares rise, Qualcomm falls as Trump quashes merger
San Francisco — US President Donald Trump on Monday blocked an unsolicited bid by Singapore-based Broadcom to take over smartphone-chip maker Qualcomm, citing national security concerns.
Trump issued an order barring the proposed mega-acquisition, saying there was credible evidence such a deal "threatens to impair the national security of the US", according to a White House statement.
The order came despite Broadcom’s assurances that it would complete its move to the US by early April, ahead of a previously planned Qualcomm shareholder vote on the $117bn deal — meaning any national security concerns are moot.
"Broadcom strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns," the company said, adding that it was reviewing the order.
The Treasury Department said in a letter at the weekend that Broadcom had on three occasions violated an order by the Committee on Foreign Investment in the United States, by failing to give advance notice before taking actions such as lodging takeover-related securities filings in the US.
An investigation by that committee of the proposed acquisition so far had "confirmed" national security concerns earlier identified by US officials, according to the letter.
Trump ordered Broadcom and Qualcomm to "immediately and permanently abandon the proposed takeover".
The rival chip giants were told to notify the committee in writing that all aspects of the order had been followed.
"This deal was a bad idea from the start," said analyst Patrick Moorhead of Moor Insights and Strategy.
Broadcom shares closed the trading day 3.5% higher at $262.84 and gained slightly more in after-market trading.
Qualcomm shares sank 4.4% to $60.04 in after-market trading.
Qualcomm has been manoeuvring for weeks to rebuff Broadcom’s unwanted advances, and had asked the committee to look into the national security implications of a merger.
Concern over China’s potential influence, and rising US protectionist sentiment, hung over the Singaporean firm’s hostile takeover bid.
Qualcomm rejected multiple Broadcom offers during weeks of parries and thrusts between the two firms since the proposed deal emerged in November.
Qualcomm, which makes most of the world’s microprocessors for smartphones, postponed its annual shareholders’ meeting after secretly requesting the national security review of Broadcom’s bid.
Qualcomm announced late on Monday that the new meeting date will be March 23, and that the six Broadcom-backed candidates vying for spots on the 11-person board are off the ballot.
"Under the terms of the presidential order, all of Broadcom’s director nominees are also disqualified from standing for election as directors of Qualcomm," the California-based company said.
The committee noted that a Broadcom-Qualcomm merger could weaken Qualcomm’s leadership in the field.
This would probably help Chinese competitors such as telecommunications firm Huawei, particularly in the emerging 5G blazing fast wireless internet, where a stronger China could present a national security issue.
While they are rival chip companies, Broadcom and Qualcomm are very different in their approaches to the market, according to Moorhead.
Qualcomm is known for mobile chip innovations that set industry standards, for example in 5G wireless connection technology, he said.
In contrast, he said, Broadcom was adept at using intellectual property developed by others and making products at low cost, referring to them as "implementors".
Moorhead likened the idea of merging the companies to mixing oil and water.
The committee probably had concerns about China, possibly about Broadcom’s relationship with entities there or the fact that the only company other than Qualcomm investing heavily in long-term mobile chip research was Huawei, he speculated.
Along with self-driving cars, drones and robots depending on super-fast wireless data connections, such networks will also be relied on by the military.
"I’m a technology analyst, not a military analyst, but it makes sense to me that troops will be wirelessly connected in the air, on the water and on the ground," Moorhead said. "There will be drones and robots."
Broadcom’s initial offer was tinged by politics, coming just after CEO Hock Tan appeared at the White House with Trump to announce plans to move the firm back to the US from Singapore.
Because Broadcom is based in the Southeast Asian financial hub essentially for tax purposes, the US government’s "case is terribly misinformed" regarding a purchase of Qualcomm, Stacy Rasgon, an analyst at market research firm Bernstein, said before Trump’s announcement.
"I get the concerns about China taking our intellectual property etc … but I think they are misplaced in this specific case," Rasgon said.