On March 12, President Trump issued an order prohibiting the $117 billion hostile takeover of Qualcomm by Singapore-based Broadcom Limited, following the recommendation of the Committee on Foreign Investment in the United States (CFIUS).1 If the merger is eventually allowed to move forward, it will likely be the largest tech merger of all time.2 In this rare move, the Trump administration has shown that it is moving towards broad interpretations of the Committee’s authority (as well as the President’s own), while simultaneously advocating for the Foreign Investment Risk Review Modernization Act (FIRRMA),3 which would even further expand the Committee’s reach.4 These signs all point to an increasing tendency to use national security as a means of promoting the administration’s political agenda. The only questions that remain are how far the administration is willing to go and what that means for the tech industry moving forward.
Established in 1975, CFIUS was originally intended to merely monitor foreign investments; the Committee didn’t have the authority to block or divest transactions it deemed problematic until the Exon-Florio Amendment was passed in 1988, granting the President such authority, which was promptly delegated to CFIUS.5 In 2007, the Foreign Investment and National Security Act (FINSA) took that authority one step further, broadening the definition of “covered transaction” while continuing to omit a definition of “national security,” making CFIUS review a far more significant hurdle for M&A transactions involving a non-U.S. entity.6 This authority is further strengthened by national security clauses in bilateral investment agreements7 and the fact that courts are largely unable to review Presidential enforcement of CFIUS recommendations.8
This intervention by the administration is unusual in several respects. First, while the Committee’s actions have generally been shrouded in a veil of secrecy, the discussion of the Broadcom-Qualcomm takeover has been very publicly disclosed.9 Second, parties to transactions have traditionally backed off of acquisitions that were poised to be barred by executive order.10 Most unusual, however, is the stage and scope of this intervention. The presidential order in this case did not simply block the transaction in question. Rather, it intervened far in advance of the transaction, proscribing the election of independent directors proposed by Broadcom to the Qualcomm board based on the possibility that these directors would vote to approve the takeover.11 Furthermore, in the background of this executive action, Broadcom is actively pursuing redomiciliation in the United States, which would usually vitiate any concerns that CFIUS might raise.12 Here, however, as the execute order specifically prohibits any “device entered into or employed for the purpose of, or with the effect of, avoiding or circumventing this order,” redomicialiation itself could be banned.
Beyond expanding the scope of CFIUS review, the administration seems to have effectively created a new defense to hostile takeovers. The CFIUS review that led to the President’s order was triggered by a unilateral request by Qualcomm without Broadcom’s knowledge.13 Time will tell whether the move will ultimately be successful, but it appears that by unilaterally involving CFIUS, Qualcomm has avoided a hostile takeover even better than it could have hoped with a poison pill or a white knight.