In early November 2017, Singapore chipmaker Broadcom Limited made an unsolicited public offer to acquire Qualcomm Incorporated, its San Diego-based rival. At a price tag of more than $100 billion, the acquisition would have been the largest ever technology transaction. After Qualcomm rejected the offer, Broadcom launched a proxy contest seeking to control the Qualcomm board. After months of a bitter proxy fight, President Trump brought the process to an abrupt halt through an Executive Order prohibiting the proposed takeover (or any substantially equivalent merger, acquisition or takeover by Broadcom). Relying on a recommendation from the Committee on Foreign Investment in the United States (CFIUS) and citing national security concerns, President Trump’s action marks only the fifth time in the last 30 years that a U.S. president has blocked foreign investment in the United States for national security reasons. (Scores of other transactions have been abandoned by parties following negative reaction from CFIUS before officially reaching the president’s desk for a decision.)
The Broadcom/Qualcomm transaction had been under review by CFIUS since January 2018 when Qualcomm submitted a unilateral notice of the transaction to CFIUS. CFIUS is a federal inter-agency committee with broad authority to review transactions and investments that could result in “control” (very broadly construed) of a U.S. business by a foreign person. Although the CFIUS review process is voluntary, if the parties to a transaction do not submit it for review and approval, CFIUS may initiate such a review at any time thereafter, require mitigation of the transaction, or even recommend that the president order a divestiture of the foreign person’s acquired interests. Many foreign companies and investors thus seek CFIUS clearance prior to acquiring or investing in U.S. companies.
CFIUS announced in March that it was investigating whether the Broadcom/Qualcomm transaction would harm U.S. national security by weakening U.S. influence over 5G telecommunications standards. The expressed fear was that Broadcom might curb investment in U.S.-based 5G technologies, clearing the way for China’s Huawei Technologies Co. to dominate development of this next-generation wireless technology and related technical standards for years to come. What ensued was akin to a chess match, with Broadcom seeking to redomicile from Singapore to the United States in an attempt to thwart CFIUS’s jurisdiction (since Broadcom no longer would be a “foreign person”), while CFIUS exercised its jurisdiction to prohibit the corporate actions necessary for Broadcom to make such a move.While the legality of these procedural skirmishes will be debated, the broad policy strokes are evident. The blocking of this deal may be based on legitimate national security justifications, but some speculate
that CFIUS is being used as another tool to achieve the Trump administration’s America-first foreign policy and economic objectives. And while it is a Singapore company, the specter that Broadcom’s acquisition of Qualcomm could advantage China (via Huawei) in the global race for telecommunications dominance — concerns outlined in a letter from CFIUS to the parties — was an important factor in the decision. In that light, this is yet another transaction that the Trump administration has halted citing national security concerns relating to China. In September 2017, President Trump issued an Executive Order blocking a Chinese investment firm, Canyon Bridge Capital Partners Inc., from acquiring Lattice Semiconductor Corporation. Not long after, the Trump administration scuttled Alibaba-affiliated Ant Financial’s bid to acquire Dallas-based fintech company MoneyGram International.
These actions signal the Trump administration’s aggressive review posture for Chinese (and other) foreign investment into U.S. technology firms under an ever evolving, expanding view about national security. Proposed legislation that many expect will be passed in the summer could strengthen the administration’s hand to this end. The lesson is that parties to transactions involving U.S. businesses and inbound foreign investment must go beyond traditional anticompetitive analyses to consider the identity of the parties involved, their country of domicile and relationship to foreign governments, the nature of the U.S. business, and the conceivable implications for national security.
If you would like additional information about the issues addressed in this client alert, please contact Rich Matheny or Jacob Osborn (on matters relating to CFIUS) or the Goodwin attorney with whom you typically consult.
 The members of CFIUS include the heads of the Departments of the Treasury (chair), Justice, Homeland Security, Commerce, Defense, State, Energy, the Office of the U.S. Trade Representative, and the Office of Science & Technology Policy.