Eight of the 10 foreign takeovers of American firms recently blocked by the Committee on Foreign Investments in the U.S. had involved Chinese buyers.
Monday’s halting of the acquisition of Qualcomm also has a China component, but the logic is particular to this case and there are few direct implications for the entertainment and media sector. Still, trade watchers worry that souring relations will have wider ramifications.
“This is a unique case where a high-profile company is attempting to buy another high-profile company. It is being highly publicized,” lawyer Chris Griner of Washington law firm Stroock & Stroock & Lavan LLP, told media shortly after the ruling.
The deal would have been a whopper. At $117 billion, the proposed takeover of one semiconductor manufacturer, Qualcomm, by another chipmaker, Broadcom, would have been the biggest in corporate history.
CFIUS recommended its halting and U.S. President Donald Trump did not hesitate to position himself as national savior. For only the fourth time in the past 25 years, a President invoked national security to halt a corporate takeover.
“There is credible evidence that leads me to believe that Broadcom Ltd. (by acquiring Qualcomm,) might take action that threatens to impair the national security of the United States,” Trump said.
Other deals that have been stopped by CFIUS and Trump include a much smaller $1.3 billion deal for Lattice Semiconductor when the acquirer was China’s Canyon Bridge. And there have been two that included names familiar in Hollywood. Harry Sloan and Jeff Sagansky’s inflight entertainment firm, Global Eagle Entertainment, was last year ordered not to sell to China’s HNA, while Alibaba chief Jack Ma was recently barred from acquiring MoneyGram for his Ant Financial.
Broadcom is not a Chinese company, but rather one from U.S. ally Singapore. Moreover, Broadcom is a company that has only been Singaporean from 2016, since another corporate maneuver, and it has retained its operational headquarters in California. So the logic of key American technologies falling into the hands of strategic rival China did not apply so straightforwardly.
Instead, it appears that the American military feared that the merger of two of its major suppliers would reduce competition and force it in the long term to buy from China’s surging tech firm Huawei. Many fear that that cooperation with and sourcing from Huawei would ultimately give the Chinese government backdoor access to U.S. military secrets.
That is a very different thought process from the thinking on U.S.-Chinese film relations. Hollywood welcomed an influx of Chinese cash between 2012 and late 2016. The end of the mergers and acquisitions boom coincided almost exactly with the election of Trump, though was sparked by Chinese regulatory intervention.
Currently the two superpowers are renegotiating a lapsed deal that covers movie imports into China, revenue shares and Hollywood’s access to the booming Chinese market. Talks are believed to be nearing their end, but things could still be blown off course if trade difficulties escalate.
Marc Ganis, who has stakes in Chinese entertainment firm Jiaflix and sports consultancy Sports Corp. in the U.S., is watching carefully. “We will see what happens if the Chinese retaliate on steel tariffs. Then we could see trade troubles broadening. But not based on Qualcomm,” Ganis said.
In a note published this week on U.S.-China business matters, the Hong Kong Trade Development Council says that the U.S. “sees mainland China and Russia as particularly problematic in terms of U.S. interests and regard them as attempting to erode U.S. security and prosperity.” Then it gloomily predicts that worse relations may yet be to come.
“Still waiting in the wings, however, is the outcome of the Section 301 investigation, which is considering whether China has acted unreasonably with regard to U.S.-related technology transfer and intellectual property. Should the investigation find against China, the U.S. has a wide range of penalties that it could theoretically impose, almost inevitably triggering another round of retaliations,” the HKTDC said.