The Aftermath of the Qualcomm Deal
There was the possibility of a $140 billion deal between Qualcomm and Broadcom. The Singapore based company, Broadcom, was willing to pay close to $140 billion in cash and shares to orchestrate a hostile takeover of the American company Qualcomm. However, President Trump and his administration have intervened. The Committee on Foreign Investments in the United States (CFIUS) has declared that this deal would prove to be a national security threat to the United States. As a result, the deal seems to be dead!
This has come as good news for Qualcomm executives who were lobbying to get rid of the deal. However, their reasons had nothing to do with national security. If the hostile takeover of Qualcomm were to take place, then all the top executives at this giant firm would have been out of a job.
It seems like it is the lobbying of the top executives that is the real reason behind the CFIUS order. This is because Singapore and the United States have long been trading and military allies. Although there is no official treaty between the two countries, their relationship is still very cordial. For instance, the United States Navy has set up a naval base in Singapore. Also, the port city acts as a stopover for all American forces.
Prima facie, it appears like the cancellation of this deal will have a negative effect on the economy of United States. In this article, we will have a closer look at the aftermath of this failed deal.
The Background of Broadcom Inc.
Broadcom Inc. is not really a Singaporean company. It was first founded in the United States by a group of UCLA scientists. The incorporation of this firm can be traced to Southern California in the year 1991. Up until, 2016, the firm was completely American. However, in the year 2016, it was taken over by a Singapore based firm named Avago Technologies. Since Broadcom was a bigger brand name, Avago decided to change its name and retain the Broadcom name.
Hence, it would be incorrect to say that Broadcom is a foreign company. Most of the people working in the organization are American or have received an education in American universities. Hence, culturally Broadcom is much more similar to American companies than it is to Singaporean or Chinese firms.
Can Broadcom Be a Threat To National Security?
There is no doubt about the fact that Qualcomm is a gigantic corporation. Its existence is central to the growth and sustenance of the American telecom market. However, Qualcomm is by no means a monopoly. There are several competitors to Qualcomm. Hence, even if the management of Broadcom were to turn against the United States, there wouldnt be a national security threat. Instead, there will be a minor trade disruption which will be sorted out within a few weeks.
Proponents of the CFIUS have been citing the cancellation of the Alibaba MoneyGram deal to assert the validity of this decision. However, the deals are not at all similar. Alibaba is a Chinese company with known ties to the Communist party. This is not the case with Qualcomm. Hence, the ban by CFIUS is totally uncalled for. Also, after acquisition, Broadcom would have a large number of assets in United States controlled territory. Hence, they would be vulnerable to American aggression.
The Possibility of Relocation
Broadcom may have anticipated that the CFIUS is likely to cause trouble. It is for this reason that Broadcom was all out in support for the policies being introduced by Donald Trump. Broadcom was vehemently in favor of the tax reforms.
In fact, the company was proposing that its headquarters be relocated to the United States. It wanted to incorporate in America and leave behind the tag of being a foreign company. The CFIUS could have negotiated with Broadcom and persuaded them to relocate to the United States. This would have certainly boosted the tax revenues in the United States. Also, this would have increased the employment rate by leaps and bounds. All these initiatives would have increased the success of the tax policy proposed by President Trump. However, for some reason, the CFIUS decided not to negotiate and simply placed a ban on the deal.
Deter Future Investments
Foreign companies invest in the United States because they believe that they will have access to a level playing field in the market. However, the action of CFIUS and Donald Trump has rattled this belief. Hence, companies like Broadcom are likely to shy away from making investments in America. This is because they will be concerned about the safety of their investments. Also, they will be concerned about the fact that their management does not have the same level of freedom as an American company has. This alters their decision making process and places them at a competitive disadvantage.
To sum it up, the decisions of the CFIUS have always been opaque. However, the blocking of the Qualcomm Broadcom deal has come as a shock to many. There is widespread belief that the CFIUS has only used the guise of national security since this issue cannot be questioned or investigated further. The real reasons for blocking of this merger are sinister and hidden from the public eye.
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