5G Megadeal Blocked by Trump On Security Grounds

Donald Trump has blocked Singapore’s Broadcom from taking over American’ chipmaker Qualcomm. He says it’s for security reasons rather than a business matter.

As well as manufacturing a huge range of semiconductors, processors and communications devices, Qualcomm has played a key role in the development of several mobile data standards. Broadcom operates in similar areas and had offered to pay $140 billion to take over its rival. The idea was to combine the scale of Broadcom with the research and development of Qualcomm, particularly when it came to making chips for 5G data.

Although Broadcom does much of its work in San Jose, it’s not incorporated in the US. If it were, the deal would likely have attracted regulatory interest on competition grounds.

Instead the President has surprisingly used the Defense Production Act to block the deal. That’s a law introduced during the Korean War that gives the President some powers over business where deemed necessary for national defense.

In the executive order blocking the deal, Trump wrote that there was “credible evidence” that by exercising control of Qualcomm, Broadcom “might take action that threatens to impair the national security of the United States.” The order didn’t give any specifics about either the evidence or the hypothetical action.

The timing of the order is particularly surprising. While blocking deals on security grounds isn’t unprecedented, it’s unusual that it would take place before stockholders in the company being bought out have voted to accept the deal. The decision also comes before a Congressional investigation into the deal has completed.

Several sources cited by the New York Times questioned the reasoning behind the order, suggesting it was as much about protecting a US business from foreign takeover as it was a security measure.