Trump Takes Broadcom From Photo-Op to Full Stop on Qualcomm
(Bloomberg Gadfly) -- Promises of jobs and tax dollars clearly only go so far with President Donald Trump.
In a stunning turn of events late Monday, Trump issued an order blocking Broadcom Ltd. from any potential takeover of Qualcomm Inc., citing "credible evidence" that the company may take actions that could impair national security. This is the same Broadcom that earned a glitzy presidential photo-op in November after announcing plans to relocate to America. The move was widely perceived as an attempt to ease regulatory approval for the pending purchase of Brocade Communications Systems Inc., but Trump only had eyes for the mythical $20 billion of revenue Broadcom was supposed to bring to American towns and workers. How times have changed.
The odds of a completed deal were already low after the Committee on Foreign Investment in the U.S. ordered a 30-day stay in Broadcom's attempt to overturn a majority of the board of Qualcomm and force the company into negotiations on its $100 billion offer. In a statement earlier on Monday, CFIUS took Broadcom to task for trying to speed up its planned move to the U.S. without proper notice and warned that it was considering referring the deal to the White House (only the president can actually block a takeover on national security grounds). But Broadcom executives met with CFIUS on Monday afternoon to plead their case.
Broadcom has repeatedly fouled up the politics on this deal and issued clumsy, vague rebuttals to the CFIUS review. It's possible that the latest meeting just went spectacularly poorly, but it's also possible the Trump administration had already made up its mind against the company, based for the moment in Singapore, and Hock Tan, its American CEO with a foreign-sounding name. Curiously, Trump's order also disqualifies Broadcom's board candidates from standing for election at Qualcomm's annual meeting.
The actual presidential order gives scant justification for this unprecedented block of a deal before one actually exists, but CFIUS's previously stated concerns were that Broadcom, a known cost-cutter, would gut Qualcomm's R&D spending and cripple the company's ability to compete against Huawei in the race for 5G technology. Lawmakers have raised the question of whether the absence of a CFIUS review would have encouraged other suitors to use proxy fights to gain effective control of American companies, and I've wondered whether others might go all the way and relocate to ease the regulatory process.
It's hard for Broadcom to battle those criticisms. The company has relied on cost cuts from acquisitions to propel its profit higher and most likely would have needed to cut deeply at Qualcomm to maintain its investment-grade credit rating at the latest proposed $79-a-share bid. Broadcom quite clearly was moving its legal mailbox as a way to evade CFIUS review. Any protestation around the risk of copycats would have rung hollow.
This is now at least the third prominent deal that has fallen apart under CFIUS scrutiny during the Trump administration. The president blocked Canyon Bridge Capital Partners LLC's attempt to buy Lattice Semiconductor Corp., ignoring the firm's pledge to save jobs. Jack Ma's pledge to create 1 million U.S. jobs didn't help his Ant Financial's attempted takeover of MoneyGram International Inc., which collapsed amid CFIUS opposition. Elsewhere, manufacturing giants that once earned Trump's praise now find themselves in the crosshairs of his steel and aluminum tariffs.
This should be a warning for future dealmakers and would-be friends of Trump. He's going to take America First to the extreme.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Brooke Sutherland is a Bloomberg Gadfly columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.
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