President of the United States banned the merger of Broadcom and Qualcomm

Published on March 13, 2018

President of the United States banned the merger of Broadcom and Qualcomm

    US President Donald Trump issued a decree that blocked the offer of Singapore-based Broadcom corporation for the purchase of US chipmaker Qualcomm for $ 119 billion. The deal could be the largest in the history of the global technology industry.

    The presidential ban on foreign investment in an American company has been imposed only four times in the last 30 years. But this case is atypical, because the ban was imposed even earlier than Qualcomm shareholders were given a chance to vote for the deal.

    According to the decree, there is "credible evidence" that if Broadcom gains control of Qualcomm, "it can take measures that threaten to damage the national security of the United States." Reference is made to the 1950 Law on the Production of Products for Defense (Defense Production Act of 1950).

    The American Law on the Production of Defense Products restricts the access of foreign investors to participation in legal entities operating in strategic industries. Each such transaction is subject to analysis for a threat to national security, and thanks to the Exon-Florio amendment (Public Law No. 100-418) to the Trade Act of 1988, the US President received the right to monitor foreign investments and prohibit their implementation when there is a threat to national security .

    Similar legislation applies in other countries. In Russia, this is the Federal Law of April 29, 2008 No. 570-ФЗ “On the Procedure for Making Foreign Investments in Business Companies of Strategic Importance to Ensure the Defense of the Country and the Security of the State”.

    ByAccording to analysts , this is a clear signal that the White House intends to pursue a protectionist policy, including that it is prepared to take extraordinary measures to protect American producers from foreign competitors, especially from Chinese companies. In recent months, Trump has taken a number of such protectionist steps, including in the technology industry. President Xi Jinping set an ambitious goal to bring China into world leaders in a number of areas, including Artificial Intelligence, supercomputers, mobile technology and other advanced branches of science and technology. Huge resources are directed to these areas.

    Here, economic interests are intertwined with national security issues. The actions of the administration of the American president indicate that the security of the country is currently directly dependent on technological superiority in the IT sector, and this superiority over China is rapidly declining, which is worrying the American authorities.

    The Qualcomm deal was considered by the CFIUS (Committee on Foreign Investment in the United States, Interdepartmental Commission , Committee on Foreign Investments in the USA), which plays a central role in opposing Chinese economic aggression. This semi-secret committee meets behind closed doors and does not give comments to the press.

    The CFIUS committee includes representatives from several agencies - and it effectively blocked several deals involving Chinese investors last year. They did not allow the sale of Moneygram to the partner company Alibaba Group and the sale of the Lattice Semiconductor to an investment firm linked to the Chinese government.

    Analysts say that the American authorities now have an understanding that foreign investors, especially from China, are using increasingly sophisticated schemes to penetrate the capital of American companies. In this case, CFIUS is used as a kind of “bazooka” in this economic confrontation, and President Trump gave the committee maximum authority. Now they are even considering the question of expanding the sphere of economic sectors where this “weapon” can be used against the Chinese.

    “The presidential administration has the opinion that China is economically dishonest towards the United States, and the current ban on the deal shows that the administration will use various remedies to adjust the playing field to level up economic relations between China and the US,” Tony commented. Ballun (Tony Balloon), head of corporate consulting in China at the law firm Alston & Bird.

    Broadcom has issued a statement in which it expressed "a strong disagreement with the fact that the proposed acquisition of Qualcomm poses any threat to national security."