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Sydnee Gatewood
Sydnee Gatewood
Articles (582) 

Broadcom Withdraws Bid to Buy Qualcomm Following Presidential Block

Deal thwarted on national security concerns

March 14, 2018 | About:

Following President Donald Trump’s decision to block Broadcom Ltd.’s (NASDAQ:AVGO) proposed $117 billion acquisition of Qualcomm Inc. (NASDAQ:QCOM) on Monday, the Singapore-based semiconductor company officially withdrew its bid on Wednesday. The company also withdrew its nominees for Qualcomm’s board of directors.

Broadcom first announced its intentions of pursuing a takeover of the San Diego-based chip manufacturer in November.

In a statement issued by the White House, CNBC reported the president said he had “credible evidence” the deal could threaten U.S. national security, despite Broadcom saying it would relocate to the U.S.

The president was not the only one who had reservations about the deal, however. The Committee on Foreign Investment in the United States, which vets foreign deals, expressed concern in a March 5 letter addressed to both companies.

The committee said it had identified several factors that would need further investigation, including whether Broadcom would focus on short-term profitability rather than long-term research and development and its relationship with “third party foreign entities,” meaning its developments in 5G technology in China. In addition, CFIUS noted Broadcom had violated its rules “on at least three separate occasions.”

In a statement, U.S. Treasury Secretary and CFIUS Chair Steven Mnuchin clarified that the decision was based on national security concerns only and did not reflect on the quality of Broadcom and its employees.

"The CFIUS process focuses exclusively on identifying and addressing national security concerns,” Mnuchin said. “This focused mandate reinforces our commitment to welcoming foreign investment, while at the same time reinforcing our commitment to protecting national security."

In a press release, Broadcom said that while it was disappointed, it would honor the order. In addition, it plans to move forward with its reincorporation process anyway.

Both Qualcomm and Broadcom were down on Wednesday morning following the announcement. Qualcomm fell more than 2% to $58.42, while Broadcom declined 0.50% to $259.91.

Year to date, Broadcom has dipped 3% and Qualcomm has slid 10%.

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Several gurus were counting on the deal to go through. In the fourth quarter, Barrow, Hanley, Mewhinney & Strauss, First Eagle Investment (Trades, Portfolio), Jim Simons (Trades, Portfolio) and Ken Fisher (Trades, Portfolio) established positions in Broadcom. Paul Tudor Jones (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) , David Carlson (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio) and several others increased their holdings.

Guru investors also took an interest in Qualcomm. Pioneer Investments (Trades, Portfolio), Halvorsen, John Paulson (Trades, Portfolio), Jones and George Soros (Trades, Portfolio) all established positions in the fourth quarter, while Steven Cohen (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Murray Stahl (Trades, Portfolio) and several others added to their holdings.

Disclosure: No positions.

About the author:

Sydnee Gatewood
I am an editorial assistant at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneeg

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