NEW DELHI: On Monday, US President Donald Trump blocked microchip maker Broadcom Ltd's proposed takeover of Qualcomm Inc on national security grounds. The deal which was under investigation by the US Committee on Foreign Investment in the United States (CFIUS), has been touted as 'what would have been the technology industry's biggest deal ever' by news agency Reuters.
US President Donald Trump blocked microchip maker Broadcom Ltd's proposed takeover of Qualcomm Inc on national security grounds
US authorities were concerned that the deal would result in market dominance of China's Huawei
CFIUS is a multi-agency panel led by the Treasury Department that reviews the national security implications of acquisitions of US corporations by foreign companies.
HOW THE DEAL GOT STALLED
The deal worth $117 billion, involved Singapore-based Broadcom's taking over of US chipmaker Qualcomm. Broadcom didn’t have an agreement to buy San Diego-based Qualcomm. It was fighting to win support from Qualcomm shareholders to gain control of its rival’s board and move forward with its offer. Before waiting for an actual deal, CFIUS opened an investigation to review the risks to national security.
Initially, CFIUS was split on whether to weigh in. Pentagon officials insisted on a review of Broadcom’s proxy battle, while Treasury had pushed back, according to people familiar with the matter.
But then on March 4, Treasury ordered Qualcomm to postpone its shareholder vote by 30 days, saying that a takeover by Broadcom threatened Qualcomm’s leadership in developing the next generation of wireless technology.
WHY CFIUS IS AGAINST THE DEAL
A White House official on Monday confirmed that the national security concerns related to the risks of Broadcom's relationship with third party foreign entities.The government said it feared Broadcom would cut investment in research and development in order to increase short-term profits. That could allow Chinese companies, namely Huawei Technologies Co., to become the dominant supplier.
A source familiar with CFIUS' thinking had said that, if the deal was completed, the US military was concerned that within 10 years, "there would essentially be a dominant player in all of these technologies and that's essentially Huawei, and then the American carriers would have no choice. They would just have to buy Huawei (equipment)."
THE LARGER US POLICY
Trump's order on Monday is the latest sign of his tough stance on foreign takeovers of US technology and is part of a broader move to contain China on trade. The Trump administration is considering clamping down on Chinese investments in the US and imposing tariffs on a broad range of its imports to punish Beijing for its alleged theft of intellectual property. Only five takeovers of American firms have been blocked by US presidents on national security grounds since 1990. Of those, Barack Obama blocked two deals during his two terms. Trump has blocked two in six months.
CHINA'S DOMINANCE DESPITE THE SNUB
World Intellectual Property Organization data show the US is right to be wary. The numbers from the UN agency also indicate that China's technological ascent probably won't be stopped by one executive order.
To smooth the process of patent applications worldwide, inventors can file for an international grant through the Patent Cooperation Treaty, to which 152 states are signatories -- including the US and China. This type of filing is a little esoteric, but is becoming increasingly important in global markets.
While the US leads the world in such applications, the two largest single corporate grant holders are Chinese. And they're both telecom companies. ZTE Corp. filed for a record 4,123 patents through the PCT in 2016, the latest year for which figures are available, followed by Huawei Technologies Co. at 3,692. Third came Qualcomm, with 2,466.