On Tuesday, the U.S. government cited national security as the basis for a full investigation of the hostile takeover of Qualcomm, the US chip giant. This review usually means that a company’s transaction will be dead.
Singapore's acquisition of Qualcomm by Broadcom could have become the largest transaction in the history of technology, creating an important force in the field of computer chip development that powers smartphones and many Internet-connected devices, but the U.S. government A group said the acquisition may weaken Qualcomm, giving its Chinese competitors an edge.
"China is likely to be fiercely competitive to fill any void left by Qualcomm for a hostile takeover," an official at the Treasury Department wrote in a letter asking for a review of the deal.
In a time when national security and economic strength are closely linked, the fight on science and technology is redefining the rules of engagement.
Under the leadership of President Xi Jinping, China has launched an ambitious plan to occupy a leading position in cutting-edge industries such as mobile technology, super calculators and artificial intelligence, and invest a lot of resources into what it considers to be the Chinese government and the military. In an effort that is vital to the economy, the Chinese government hopes to build its own technology leadership and encourage companies to acquire engineering technology, expertise and intellectual property from large competitors in the United States and elsewhere.
This aggressive offensive has aroused Washington’s vigilance. Policymakers and legislators are concerned that the US giants lose their advantage. President Trump is strengthening the defense of the United States. The government is investigating actions that may infringe US intellectual property rights and strengthen its overseas transactions. Review.
The secret group that reviews Qualcomm's transactions is the Committee on Foreign Investment in the United States (Cfius). This committee plays a central role in boycotting Chinese investment. It is led by the Ministry of Finance and represented by several agencies. It has the power to prevent foreign companies from acquiring US companies on the grounds of national security. In the past year, it effectively stifled several purchase transactions related to Chinese buyers. Members also called for expanding the power of Cfius, extending To broader areas related to Chinese interests.
(What is Cfius? A senior executive engaged in M&A deals said that it is “the ultimate supervised rocket launcher.” For more information on Cfius, click here.)
“The Trump administration has put a turbo boost on its power,” said Tony Balloon, head of Chinese operations at Alston & Bird, when he mentioned Cfius. “Now The U.S. government is aware that foreign investors, especially Chinese investors, are getting more and more sophisticated about how to get U.S. technology."
In the case of Qualcomm, the U.S. government clearly expressed its vision for the ever-changing global economic leadership.
The company is a major supplier to the U.S. government and is a leader in the race to build next-generation wireless technology 5G. These high-speed mobile networks will form the backbone of the infrastructure, eventually bringing together home appliances, street lights and driverless cars. The Internet is connected. Many devices and machines running on these networks will use Qualcomm's chips.
"Let a well-known and trusted company take the lead, just as Qualcomm has in the field of telecommunications infrastructure, so that people can have great confidence in the reliability of such infrastructure that is closely related to national security," said the U.S. Department of the Treasury. An official wrote in the letter.
Huawei at the Mobile World Congress in Barcelona last month. PAU BARRENA/AGENCE FRANCE-PRESSE — GETTY IMAGES
The U.S. government made special mention of China’s telecommunications equipment giant Huawei, saying that it is a potential competitor and may fill the gap caused by mergers and acquisitions. The Chinese company has invested heavily in 5G networks and the Chinese government has stated that it owns this key patent. 10%.
“This is a new example,” said Paul Triolo, head of global technology policy affairs at the Eurasia Group, a geopolitical risk consultancy. “It means 5G, artificial intelligence, biotechnology. Technologies such as automation and automation are now considered to be more sensitive technologies and belong to the national innovation base that needs protection."
Broadcom said that it is cooperating with Cfius and stated that it would “let the merged company become a global leader in the critical 5G and other technology areas.” Qualcomm said in an earlier statement that the review was “very serious”. Thing ".
The letter and the call for an investigation reflect Cfius' recent strength.
In most cases, the committee expressed its opinions after the transaction was announced. However, on the issue of Qualcomm, Cfius preemptively launched an investigation before signing the acquisition agreement.
In the past year, Cfius stopped a number of deals.
The transfer company MoneyGram and China Electronics Payments Ant Financial Corp. canceled the merger plan in January. The reason given was Cfius' regulatory concerns. If this transaction is passed, Ant Financial will receive a lot of money flow data, which may be It will cause security problems. Ant Financial has questioned the claim.
Last year, the White House halted plans for a Chinese-backed investment group to acquire Lattice Semiconductor, the US government's supplier. The member of the investment group, China Venture Capital, is the owner of the state support. Entity.
"This is a complete definition of national security," said Zhang Taiming, director of the Institute for Global Conflict and Cooperation at the University of California at San D iego. "Involving China's investment and acquisition of the United States A key component of the innovation system. "
Cfius's power may soon increase.
There is new legislation calling for the expansion of Cfius's jurisdiction, which has bipartisan support in the Senate, and Trump has expressed its support for the revision of Cfius's governing rules, as Treasury Secretary Steven Mnuchin also said last year The government is working closely with both the Senate and House.
The bill, proposed by Republican Senators John Cornyn of Texas and Democratic Senator Dianne Feinstein of California, will give Cfius an assessment of certain types of joint ventures, minority investments And a military base near the real estate transaction rights.An issue of the motion in a press release shows that the legislation will also expand the definition of "key technologies" that may be subject to review, the "may be to keep the United States relative to China and other threats Including the emerging technologies where the technological advantages of the countries are crucial.
In addition to the review, the United States Trade Representative also investigated whether China “damaged the U.S. intellectual property, innovation or technological development.” One concern of the agency is that U.S. companies are forced to surrender technology and establish joint ventures. Companies or other ways to help Chinese local companies in exchange for access to the Chinese market. For example, Qualcomm has been working with the Chinese government to develop drones, artificial intelligence and mobile technology.
Technology companies are caught in the middle of the contest between the United States and China.Although there is concern about the invasion of China, the U.S. tech industry has also realized that such deals are the price of entering the world's second-largest economy. Some companies protest the proposed reform of Cfius , Saying its expansion may be abused, and new definitions of emerging technologies are not yet clear.
IBM said the bill would limit "the ability of U.S. companies to do business overseas, while empowering foreign competitors to dominate the global market." Industry organizations The Information Technology Industry Council lobbied against reform saying it would add to the difficulty for Silicon Valley companies The latter 's business relationship in China is often complicated.
"They are in a dilemma," said Rob Atkinson, president of the Information Technology and Innovation Foundation, a technology company sponsored by Microsoft and other technology companies. "The Chinese government says it must do so." Doing business here. The United States says it can't do this."