Snapshot: Impact of Trump blocking Broadcom deal

Donald Trump blocked Singapore-based semiconductor manufacturer Broadcom’s planned takeover of US chipmaker Qualcomm on national security grounds. While China was not named, Broadcom was presumably targeted over perceived links to Beijing. How will this impact other non-Chinese companies with ethnic Chinese ownership or management?

Qualcomm offices in San Jose, California
Qualcomm offices in San Jose, California.

Events

Singapore-based semiconductor manufacturer Broadcom launched an unsolicited bid for U.S. rival Qualcomm in November 2017. After this was rebuffed by the San-Diego-based chipmaker’s management and board, Broadcom began gathering support from investors to overturn Qualcomm’s opposition.

On 4 March, the Committee on Foreign Investment in the U.S. (CFIUS), which reviews the purchase of American businesses by foreign investors, told Qualcomm to postpone a shareholder meeting to vote on Broadcom’s nominees as directors. According to Bloomberg, voting return data the news organisation saw showed that Broadcom was on course to win control of the board.

The proposed USD117 billion deal would have been the largest in the technology industry.

CFUIS confirmed national security threats related to the acquisition. Qualcomm has “active sole source classified prime contracts” with the Pentagon, said the U.S. Treasury Department in a letter to Broadcom and Qualcomm.

On 12 March, U.S. President Donald Trump banned the deal, stating: ‘There is credible evidence that leads me to believe that Broadcom,’ by acquiring Qualcomm, ‘might take action that threatens to impair the national security of the United States.’

Broadcom said that it ‘strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns’.
Qualcomm spent USD8.3 million on federal lobbying in 2017, according to federal lobbying disclosures, covering a range of issues.

Context

Economically, Singapore has a close relationship with China. In 2017, it replaced the U.S. as the top destination for Chinese investments. Politically, however, relations are more strained as China does not approve of Singapore’s close defence ties with Taiwan, which Beijing considers a breakaway territory.

Although since 1990 only five takeovers of U.S. firms have been halted on national security grounds by U.S. presidents, reported Bloomberg, two of these have been blocked by Trump within a six-month period.

In January, a plan by Jack Ma, founder of Chinese internet conglomerate Alibaba, to acquire U.S. money transfer company MoneyGram collapsed after CFIUS rejected it over national security concerns, reportedly concerning the safety of data that could be used to identify US citizens.

In the U.S. Congress, a bill to bar Chinese telecoms companies Huawei and ZTE from bidding for US government contracts is currently under consideration.

Analysis

Trump’s order blocking the Broadcom bid for Qualcomm can be seen in the context of U.S. moves to contain China over trade. He is reportedly seeking to impose tariffs on up to US$60 billion of Chinese imports, targeting the technology and telecommunications sectors, over Beijing’s alleged theft of intellectual property.

But here the ban applied to a company that is not Chinese, yet which was presumably targeted over perceived links to Beijing.

Some commentators described Trump’s intervention as ‘troubling’ as it seems to set a precedent placing business deal approval within the president’s personal scope.

Trump’s action indicates that the U.S. may perceive any company with ethnic Chinese ownership or senior management as having links, directly or indirectly, to the Chinese government

This may lead to reduced business opportunities – particularly in sectors such as technology and telecommunications – for companies with ethnic Chinese ownership or management, including those from Singapore, Taiwan, Malaysia and elsewhere in South-East Asia.

In this climate, investors from such countries who are targeting U.S. acquisitions should consider strategies to emphasise their independence from the People’s Republic of China (PRC).

This could be accomplished by pre-bid engagement of specialist communications consultants in Washington D.C. who could advise on how best to present the investment to a U.S. audience.

Companies should consider creating local companies in Western jurisdictions, complete with local management teams, separate branding and ‘ring fenced’ business operations.

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