Hostile U.S. Targets Have A New Defender

The Trump administration's economic policy decisions are being shaped by national security concerns.

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President Donald Trump last month became the first US president to use his executive powers to block a private company’s acquisition that had not yet closed. He ordered Singapore-based Broadcom to abandon its $146 billion hostile bid for rival US chipmaker Qualcomm, citing national security concerns. Broadcom withdrew its offer two days later, despite the fact it appeared to be winning the support of Qualcomm’s shareholders.

Trump was acting on the recommendation of the US Treasury’s Committee on Foreign Investment in the US (CFIUS), which warned that the acquisition might give Chinese technology firms an advantage in the race to deploy 5G wireless technology worldwide.

CFIUS was worried that Broadcom’s private-equity style of cutting costs would weaken Qualcomm’s international competitiveness. CFIUS, an inter-agency panel, rarely reviews merger deals before they are clinched.

Broadcom was attempting to redomicile in the US to get around CFIUS jurisdiction. Qualcomm unilaterally made the request for a CFIUS review, whereas in all other cases the buyer and the seller have jointly submitted a voluntary notice to CFIUS. Legal sources said this could be the beginning of a trend for other US businesses facing hostile takeovers by foreign entities to unilaterally request a CFIUS review.

Broadcom-Qualcomm was the largest tech M&A deal ever to be withdrawn, and the fourth-largest withdrawn deal of any kind, according to Thomson Reuters.