Trump Blocks Broadcom-Qualcomm Deal Citing National Security Concerns

March 13, 2018 8:40 am
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Broadcom Ltd (NASDAQ:AVGO)'s proposed billion takeover of QUALCOMM, Inc. (NASDAQ:QCOM) hit a major setback that will put an end to the month-long pursuit.

What Happened

President Donald Trump on Monday rejected Singapore-based Broadcom's hostile takeover of U.S.-based Qualcomm due to national security concerns. At first glance, the decision may be puzzling as Broadcom was actively looking to move its headquarters to the U.S. but the logic behind blocking deal is simple.

"…Trump sent a clear signal to overseas investors: Any deal that could give China an edge in critical technology will be swatted down in the name of national security," Bloomberg's David McLaughlin and Saleha Mohsin said.

Why It's Important

The U.S. government's CFIUS had legitimate concerns the proposed acquisition would slow down Qualcomm's push into 5G technology. This may give its biggest rival, China's Huawei, a greater path towards dominance in the latest wireless technology.

Access to the wireless technology and control over them is "viewed as a national security threat in a way that steel once could, in the last century," Forbes contributor Ken Roberts said.

What's Next

Qualcomm's near-term outlook is one of "sink or swim," Bernstein's Stacy Rasgon said in a note. The company is likely to focus on closing its pending acquisition of NXP Semiconductors NV (NASDAQ:NXPI) as part of a path towards rebuilding credibility with the investment community.

On the other hand, Broadcom remains favorable "with or without a Qualcomm deal," the analyst said. The company boasts a cheap valuation coupled with a best-in-class financials and could deploy its cash in "numerous ways to create value."

Broadcom was trading up about 1.1 percent Tuesday morning, while Qualcomm was down 4.8 percent at $59.75.

Related Links:

Why Qualcomm's Takeover Bid By Broadcom Raises Security Concern

4 M&A Deals Blocked By US Presidents For The Sake Of National Security

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