- On 12 March the US president signed an order prohibiting the takeover of Qualcomm by Broadcom, on national security grounds.
- The order relies on the Defense Production Act and on a recommendation from the foreign investment committee, CFIUS.
- Anyone buying or selling in strategic sectors must assess foreign investment screening from the start of the deal.
On 12 March 2018 the President of the United States signed an order prohibiting the acquisition of Qualcomm by Broadcom, a deal worth more than $100 billion that would have been the largest ever in the technology sector. The order invokes national security grounds and relies on section 721 of the Defense Production Act of 1950.
The decision followed a review by the Committee on Foreign Investment in the United States (CFIUS), which had issued an interim order on 4 March. The presidential order requires the parties to abandon the agreement and prohibits any substantially equivalent transaction. Broadcom, then headquartered in Singapore and planning to move to the US, rejected that its offer posed national security risks.
What CFIUS is
CFIUS is an inter-agency committee that reviews foreign investments in US companies that could affect national security. A review can start at the parties’ request or on its own initiative, and can end with clearance, with conditions or with a recommendation to the president to block the deal.
The president has the last word, but the occasions on which it has been used are very few: according to a law firm, this was only the fifth time in thirty years that a US president blocked a foreign investment on national security grounds. That is why the decision is regarded as a precedent of particular importance. The process unfolded in a few weeks: a few days before the presidential order the committee had already adopted an interim measure, which shows how quickly it can act when it sees a risk.
The grounds for the block
Among the reasons cited, the committee mentioned the acquirer’s history of cutting research spending, and the risk that such cuts could weaken Qualcomm’s technological position. The order also disqualified the fifteen candidates Broadcom had proposed for Qualcomm’s board and ordered its annual meeting to be held promptly.
Beyond the specific case, the decision shows that governments can put national security ahead of the financial logic of a merger, even between private companies and with no direct competitor involved. In sectors such as semiconductors, communications or energy, foreign investment controls are a growing factor in deal planning. The case adds to a broader debate on controlling foreign investment in technologies regarded as strategic, in the United States and in other economies, where several governments are considering strengthening their mechanisms.
What to review
In any cross-border transaction, it is worth identifying from the start which regulatory approvals are needed, in which countries and on what timetable. Purchase agreements usually include conditions precedent and long-stop dates precisely to accommodate these reviews, and allocate the risk that they are not obtained.
For family businesses or investors who might sell to foreign buyers, it helps to know whether their sector is considered sensitive and what screening rules exist. Many countries, including European ones, maintain mechanisms to review investments on security or strategic grounds. This information is general; for your case, consult your adviser. In the sale of a family business, the prudent course is to involve the legal adviser from the start and assess with the buyer which approvals will be needed and who bears the risk that they are not obtained.
In large deals, political clearance can weigh as much as the price.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
