Broadcom Ltd’s (NASDAQ:AVGO) attempt to take over Qualcomm, Inc. (NASDAQ:QCOM) is effectively dead after a presidential intervention.
U.S. President Donald Trump has blocked what had the potential to be the biggest ever deal in the technology industry. He has put an end to the proposed $117 billion sale based on national security grounds. Thus, the five-month saga of Broadcom’s Qualcomm takeover ends.
As might be expected, the stock market had something to say about the failed Qualcomm takeover. Since the news, QCOM stock is down over 4%. AVGO is up 3% over yesterday’s close.
And the company that’s being fingered for the failure of Broadcom’s Qualcomm takeover is China’s Huawei.
Broadcom’s Qualcomm Takeover Blocked by President Trump
On Monday, U.S. President Donald Trump issued a presidential order prohibiting the sale just as Broadcom’s hostile takeover of Qualcomm was on the verge of succeeding.
The presidential order states:
“There is credible evidence that leads me to believe that Broadcom Limited, a limited company organized under the laws of Singapore (Broadcom) …. through exercising control of Qualcomm Incorporated (Qualcomm), a Delaware corporation, might take action that threatens to impair the national security of the United States.”
Broadcom released a statement disagreeing with findings that the deal represents a security risk.
Reuters reports a White House official stated the proposed acquisition of Qualcomm — an American company — by Singapore-based Broadcom could result in China taking a lead in next generation (5G) cellular technology.
Yesterday’s presidential order final puts an end to a five-month saga that began last November, when Broadcom bid $103 billion for Qualcomm. That was the opening salvo in a battle that saw Broadcom attempt to appoint 11 nominees to QCOM’s board, an FTC investigation and multiple bids. As well as Qualcomm muddying the waters by making an offer to buy NXP Semiconductors NV (NASDAQ:NXPI) and an investigation by the Committee on Foreign Investment in the United States (CFIUS).
Since the drama began on November 6, Broadcom shares had lost over 5% of their value. QCOM stock — despite many ups and downs — essentially sits right where it did at the start.
Where Does Huawei Fit in?
How does China’s Huawei fit into the failed Broadcom takeover? According to the Reuters report, there were concerns that if the deal were to go ahead, it would put China’s Huawei in a position to be the dominant player in 5G technology “within 10 years.”
That would require U.S. carriers — and possibly the U.S. military — to start buying Huawei equipment.
And the U.S. government has already been actively blocking Huawei’s U.S. ambitions, including pressuring AT&T (NYSE:T) from carrying Huawei smartphones just prior to the planned CES 2018 announcement of that deal.
What Happens Next?
For Qualcomm, now that the distraction of the attempted Broadcom takeover has played out, it’s time to deal with its long list of challenges, including regulatory battles, a long and costly legal fight with Apple Inc. (NASDAQ:AAPL) and a continued trend by smartphone manufacturers to ditch QCOM’s Snapdragon chips in favor of custom-designed processors.
Broadcom is in the midst of moving its headquarters to the U.S. and could possibly make another attempt at buying Qualcomm once it’s officially based in America. At that point, Broadcom could contest the authority of CFIUS since its jurisdiction covers foreign companies. And Broadcom could also challenge the national security concerns the agency had raised.
As a result of the president’s block, I expect rumors over Intel Corporation (NASDAQ:INTC) considering a Broadcom takeover should the company successfully acquire QCOM to also die down. The move would have been a defensive one against the combined companies, but with the status quo, Intel won’t be feeling the pressure to take action.
With Broadcom’s U.S. move scheduled to take place by April 3, the next few weeks stand to be interesting ones for Qualcomm and Broadcom investors.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
