There has been a long battle between two chip-making giants, Broadcom and Qualcomm. While the former is a Singaporean company, the latter is an American chip maker. Qualcomm has been so successful and its flagship Snapdragon 835 and most recently 845 has been a hit. However, Broadcom has shown its intention to buy over the company but its valuation does not meet the demands of Qualcomm. Considering the consistent successes of Qualcomm’s Snapdragon chips which are the desire of most smartphone makers, the company is not interested in selling. But in truth, Qualcomm would have easily caved if Broadcom had come up with an outrageous bid. In all, President Donald Trump canceled the deal today on security grounds but we have reasons to believe that there is more to Mr. Trump’s decision. Before now, numerous events have occurred since the rumor of this take-over first surfaced online and in this article, we give you succinct rundown of events with dates including other factors that may have contributed to Trump’s decision.
November 4, 2017 – Deal Rumors Surface Online
The first set of rumors surfaced online via Bloomberg which suggested that Broadcom will make a $100 billion bid for Qualcomm. At the time, the sum was seen as “whooping” and many felt both companies would benefit from the merger since Broadcom is the biggest Wi-Fi chips maker in the world, while Qualcomm is the largest maker of Modems.
November 14, 2017 – Qualcomm Rejects First Bid
Qualcomm’s board of directors outrightly rejects Broadcom’s first $103 billion bid saying that the value was underestimated. However, Broadcom reiterated that it thinks that its offer is the most lucrative for Qualcomm shareholders and it has been getting positive responses from Qualcomm shareholders.
February 9, 2018 – Qualcomm Rejects Second Bid
After Qualcomm rejected Broadcom’s first bid, there was a long period of inactivity. Within this period, both companies were strategizing on how to protect their interest. However, on February 9th, Qualcomm rejected a second bid from Broadcom worth about $121 Billion (cash and stock bid of $82 a share). However, Qualcomm suggested that it will into a meeting with Broadcom “to see if it can address the serious deficiencies in value and certainty in its proposal”.
February 12, 2018 – Qualcomm & Broadcom To Meet On February 14.
Qualcomm stated through its Chairman, Paul Jacobs, that Broadcom’s current offer does not reflect the acquisition of NXP Technologies which only needs approval from Chinese regulators for the closing formalities of the deal. Sequel to this, both companies agreed to meet on February 14 to iron out important financial aspects of the deal.
February 13, 2018 – Broadcom Officially Initiates Hostile Take-Over
Broadcom Ltd. commenced a hostile fight for Qualcomm Inc. when it nominated six members into Qualcomm’s board consisting of eleven members. Broadcom’s six board nominees are Samih Elhage, David Golden, Veronica Hagen, Julie Hill, John Kispert and Harry You. If these members get on the board, it means that Broadcom will have its way seamlessly and Qualcomm will be more or less crippled. Voting was scheduled for March 6. This move by Broadcom was quite surprising because the companies were due to meet the next day and this obviously made talks sour.
February 21, 2018 – Broadcom Lowers Bid For Qualcomm
March 5, 2018 – Qualcomm Prepares For AGM: Restates Its Stands
As Qualcomm prepared for its Anual General Meeting (AGM) on March 6, the company restated its stand that Broadcom’s current valuation of $79 per share and its previous offer of $82 per share widely falls short of the value of the company and it is not worth negotiating.
March 6, 2018 – CFIUS Postpones Qualcomm AGM
Just a few hours to Qualcomm’s AGM where the board members are to be voted, little known CFIUS (Committee on Foreign Investment In The United States) steps in and requested that it needs at least a month to access the takeover bid between Broadcom and Qualcomm because its role is to examine the impact of foreign investment in the United States on national security. Subsequently, Qualcomm postponed its AGM to April 5. This didn’t go well with Broadcom which immediately accused Qualcomm of engineering CFIUS decision – a claim that Qualcomm immediately denied.
March 10, 2018 – Qualcomm Appoints New Chairman
In a bid to convince its shareholders that the company is not run by an “insider”, Qualcomm appointed a new board chairman – Jeffrey Henderson who replaces Paul Jacobs. Mr. Jacob’s has been Qualcomm’s CEO from 2005 to 2014. However, Jacobs Jnr who is the son of the co-founder of Qualcomm Irwin Mark Jacobs will remain on the board. On the same day, rumors surfaced that another chip manufacturing giant, Intel, will likely try to halt the Qualcomm – Broadcom deal by making a bid for Broadcom. The company sees the merger as a major threat to its business and it happens, Intel may not have a chance against Qualcomm/Broadcom combined.
March 13, 2018 – Donald Trump Cancels The Deal On “Security Grounds”
Surprisingly, the Broadcom – Qualcomm brouhaha has attracted the number one citizen of the US. Today President Trump canceled this long-running battle between the two companies and they abandon and forget the transaction. He canceled all hopes for this deal on security grounds. The White House issued a statement
“THERE IS CREDIBLE EVIDENCE THAT LEADS ME TO BELIEVE THAT BROADCOM LIMITED, A LIMITED COMPANY ORGANIZED UNDER THE LAWS OF SINGAPORE (BROADCOM)…THROUGH EXERCISING CONTROL OF QUALCOMM INCORPORATED (QUALCOMM), A DELAWARE CORPORATION, MIGHT TAKE ACTION THAT THREATENS TO IMPAIR THE NATIONAL SECURITY OF THE UNITED STATES.”
Broadcom said in a statement that it “strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns.” Before Trump’s statement, some US lawmakers have kicked against the deal considering the fact that the company is on the verge of transiting to the next-gen 5G connectivity.
Probable Factors That May Have Influenced Donald Trump’s Decision
Although Broadcom is a Singaporean company, it has registered to be domiciled in the US but the national status of Broadcom is not the issue that is raising national security concerns.
1. Broadcom acquisition will give China an advantage
The fear of China is a major factor influencing the decision by the US government. Qualcomm and Chinese manufacturing giant, Huawei, is on the verge of a major breakthrough in 5G technology and Qualcomm is most likely a step ahead of Huawei. The US government believes that this deal will weaken Qualcomm and the U.S. position in this breakthrough which will then allow Huawei to be in the driver’s seat.
Ron Napier, head of Napier Investment Advisors said
“It is not just China, it is not just chips. It is broad technology. It is U.S.military power and economic power going forward and he’s got a very consistent point of view,”
2. Broadcom is associated with certain foreign entities
The national security concerns cited by Donald Trump is related to the fact that Broadcom has certainties to some foreign entities, a White House official told Reuters.
Quincy Krosby, chief market strategist at Prudential Financial said
“The latest development shouldn’t come as a surprise,…”The president has been very clear about wanting to take care of competition within the United States and having tech companies stronger and stronger,”
Although this seems like the end of this deal, we can not be too sure because this struggle has taken numerous twists in the past. We have to keep our fingers crossed and watch events unfold.