An increasingly muscular Committee on Foreign Investment in the United States (CFIUS) is behind the decision by President Trump to block a planned $117 billion (£84 billion) takeover of US chip giant Qualcomm by Singapore’s Broadcom, its letter to Broadcom reveals – while also letting slip that Qualcomm had “unilaterally” written to it with concerns in January.

There is “credible evidence” that the hostile takeover would result in “action that threatens to impair the national security of the United States, the White House claimed today, issuing an order blocking the takeover and ordering Qualcomm to reconvene its 2018 AGM on the earliest possible date – confirmed by the company as March 23, 2018.

Broadcom, which was ordered to “immediately and permanently abandon the proposed takeover,” rejected the claims and responded in a in a terse statement that it would be reviewing the decision: “Broadcom strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns,” the company said.

“Charm will only get you so far…”

Dr. Harry G. Broadman is CEO and Managing Partner of Proa Global Partners, an emerging markets investment advisory firm, and on the Johns Hopkins University Faculty.

He sat on CFIUS –the interagency body that oversees and investigates the national security aspects of planned foreign direct investment (FDI) into the US – in the early 1990s while serving in the White House. He told Computer Business Review: “Broadcom’s CEO put on a charm offensive with President Trump, visiting him at the White House. But in cases involving national security, especially with this administration, charm will get you only so far.

He added: “Under the law the President’s decision is final and we are seeing that a Trump-run CFIUS will be more and more aggressive.”

In a prescient piece for Forbes in February, he had warned of the “sometimes-sheer naiveté of potential foreign investors pursuing deals in the U.S.—not to mention that of the advisors inside the U.S. from which they seek counsel—about how to structure a strategy to deal with the CFIUS process,” noting that it has a “well-spelled out set of procedures.”

Did Broadcom Tread on CFIUS’ Toes?

A furious letter from CFIUS provides insight this morning into the decision – and reveals how moves by Broadcom to hasten its redomiciliation to the US may have been the final nail in the coffin of the deal. With concerns already raised by CFIUS, Broadcom had announced plans to bring forward its redomiciliation to the US to April 3, from May 6.

As the CFIUS letter shows, this did not go down well.

Aimen N. Mir, Deputy Assistant Secretary for Investment Security at U.S. Department of the Treasury, states that CFIUS had written to Broadcom’s lawyers on March 5, saying that it had identified potential national security concerns that warranted a “full investigation”.

(These were based, in part, on information submitted by Qualcomm in its “unilateral voluntary notice on January 29”, the letter reveals).

“Broadcom took a series of actions in violation of the Interim Order [of March 4, delaying the deal]. Specifically, Broadcom, on at least three separate occasions, took action towards redomiciliation in the United States without providing five business days’ notice as required.”

These included filing a definitive proxy statement with the US Securities and Exchange Commission and making filings with a court in Singapore “just three hours” after submitting an emergency waiver request to CFIUS, the latter “notwithstanding CFIUS informing Broadcom that it was still in the process of considering the request” the letter notes.

Mir concludes: “In the absence of information that changes CFIUS’ assessment of the national security risks, CFIUS would consider taking further action, including but not limited to referring the transaction to the president for decision.”

Who’s the Apex Predator Now?

The plot had earlier thickened, amid reports that Intel was so troubled by the prospect of a combined Broadcom and Qualcomm that it was considering taking the role of “apex predator” and buying Broadcom to stop the transaction.

“I know for a fact that almost the entire cellular and mobile ecosystem are breathing a collective sigh of relief after Trump blocked this #Qualcomm and #Broadcom deal”, Consumer and Chip analyst at Moor Insights & Strategy Anshel Sag wrote on Twitter.

John Bowers, the founder of IoT and autonomous cars specialists JCC Bowers, told Computer Business Review: “With the rise of new digital convergence technologies like ours; in AI and Autonomous vehicles, and a general propensity for further chip demand rising from 5G technologies, it is difficult to argue with the outcome of this proposed acquisition and careful consideration needs to given surrounding general data management within the technology industries, particularly as we move ever further forward to a digital revolution.

“It’s clear that Qualcomm have leveraged this position to mitigate against the acquisition with great effect and it is difficult to argue with their position of the offer being an undervaluation. With the technology industries current trajectory showing a next wave of convergence, opportunity for established chip makers is significant and that doesn’t appear to have been reflected in the Broadcom’s bid and underpins yet further market consolidations and further debate about this subject matter in the not-too-distant future.”