“The proposed takeover of Qualcomm (QCOM – Free Report) by the Purchaser (Broadcom – (AVGO – Free Report) is prohibited, and any substantially equivalent merger, acquisition, or takeover, whether effected directly or indirectly, is also prohibited,” the presidential order read.

The order was purportedly based on the national security findings of the Committee on Foreign Investment in the United States (CFIUS), but some news reports indicated that no formal order had reached the President and the decision appeared to have been made beforehand.

Other reports quoted CFIUS as saying, “A shift to Chinese dominance in 5G would have substantial negative national security consequences for the United States,” and “While the United States remains dominant in the standards-setting space currently, China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover.”

According to a Jefferies report, which cited LexInnova research, Qualcomm is estimated to have a 15% share of 5G-essential patents, Nokia (NOK – Free Report) 11% and all of China 10%.

At any rate, the presidential order can’t be challenged, nor can the findings of the CFIUS, although the CFIUS jurisdiction can be challenged.

Broadcom is doing none of the above and instead stepping away from the deal, including the nomination of directors to replace the current board and focusing on its redomiciling plans. This is a win for the Trump administration because it will bring back tax revenue. There will be a negative impact on Broadcom because the tax rates in the U.S. are higher.

On the positive side, Broadcom, once it gets rid of its foreign ownership/control, will be able to pursue most acquisitions in the U.S. without interference from the CFIUS or another regulatory scrutiny (other than the standard procedures).

This was quite an unprecedented move wherein Qualcomm management approached the CFIUS to block the deal and the President moved to stop it even before there was an agreement between the companies. It shows that all is far from well at Qualcomm where shareholders were in favor of the deal that management and the board opposed.

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