Published: Wed, March 14, 2018
Science | By Joan Schultz

Broadcom to stay on deal path after Qualcomm halt, say analysts

Broadcom to stay on deal path after Qualcomm halt, say analysts

Trump signed an order late on Monday to halt what would have been the biggest-ever technology deal on concerns that a takeover of Qualcomm by the Singapore-based company would erode the United States' lead in mobile technology and give China the upper hand. While Intel is "eager for Broadcom to fail", it could make a play for the company if the merger gained momentum, the Journal said in another report on Friday.

Chris Caso, an industry analyst with Raymond James, pointed out how brief the review of the deal was by U.S. Committee on Foreign Investment, and how rare it is for a U.S. president to intervene. Although Broadcom is based in Singapore, China loomed large over the USA government's fears about a foreign takeover of chipmaker Qualcomm.

That panel, the Committee on Foreign Investment in the USA, known as CFIUS, said it was anxious that Broadcom would stymie research and development at Qualcomm given its reputation as a cost-cutting behemoth. "Underpinning that is concern about China's growing competitiveness in areas such as 5G and artificial intelligence, which are set to become increasingly important in the next few years", the publication reported.

But with Broadcom playing countless takeover-related tricks to move closer and closer to being able to buy Qualcomm, the White House and Trump administration has stepped in to block it all.

CFIUS was also concerned by Broadcom's efforts to expedite its redomiciliation to the USA following the panel's decision March 4 to investigate its bid for Qualcomm. Broadcom's options are "not many, and not good", said Michael Gershberg, an attorney with Fried, Frank, Harris, Shriver & Jacobson LLP, who has experience with CFIUS cases.

It fended off antitrust concerns around the globe over its intellectual property strategies, taking the biggest share of wireless royalties in the 3G and 4G eras and getting a head start on next decade's 5G era, which promises to embed wireless connections in cars, factories, homes and cities.

Broadcom now has ample firepower for smaller deals, with about $11 billion in cash and the potential to generate almost $9 billion in annual free cash flow, analysts estimate. Xilinx has a market value of US$20 billion and Mellanox is just under US$4 billion. Xilinx declined to comment.

Some private-sector lawyers who specialize in CFIUS matters said the panel's decision to intervene in the proposed deal before it was even signed - and its rationale for recommending against it, which included concerns over its ramifications for US competition with China - represented an abuse of the committee's powers as its reviews are focused purely on national security issues.

"But that really hinges on completely severing the foreign ownership connection", he said.

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