Broadcom’s merger with Qualcomm likely to face intense antritrust scrutiny

This merger is likely to be one of the topics of discussion when U.S. President Donald Trump visits China.

According to antitrust lawyers, with China itching to get into the semiconductors industry, the potential merger of chipmaker Broadcom Ltd with its U.S. rival Qualcomm Inc is likely to face heightened scrutiny in China.

On Monday, Broadcom made an unsolicited $103 billion bid for Qualcomm in its bid to create a $200-billion-plus behemoth with which it can reshape the heart of the mobile phone hardware.

However getting the nod from China could be a hurdle given that the United States’ Committee on Foreign Investment in the United States (CFIUS) has blocked a number of Chinese takeovers this year.

Discussions regarding this matter is likely to prop up when U.S. President Donald Trump visits China this week, with Qualcomm executives as part of his entourage.

It is very likely that the merger will face a lengthy review from China’s anti-monopoly unit of its commerce ministry, given its strategic concerns and the size of the deal.

Incidentally, in the past China’s regulators have found issues with Qualcomm citing competition concerns.

“This is a critical industry for China and Qualcomm has been fined by the Ministry of Commerce (Mofcom) before so it’s on its radar,” said Wendy Yan, Shanghai-based partner at law firm Faegre Baker Daniels.

In 2015, Qualcomm had agreed to pay a record fine of $975 million in China to end a probe into its anti-competitive practices related to “double dipping” by billing Chinese customers patent royalty fees in addition to charging for the chips.

The review of Broadcom with Qualcomm comes in the wake of China making a major push into the semiconductor industry to help reduce its dependence on global operators, such as Samsung Electronics Co Ltd, Qualcomm, and Intel Corp.

“(Mofcom) will consider industry security for the whole country, as the semi-conductor industry has strategic importance to China,” said a second Shanghai-based antitrust lawyer on the cover of anonymity since Qualcomm is a client of his firm.

As per the antitrust lawyer, the size and complexity of the deal, including potential sensitivities, means it is likely that the scrutiny of the deal will go through all three phases of Mofcom’s merger approval, on paper a 180-day process.

“We expect China, as with other countries, will welcome this deal as a solution to the double-dipping issue, and will find there are no significant issues beyond this,” said Broadcom’s spokeswoman.

Last week, Hock Tan, Broadcom’s CEO stated the company would relocate its headquarters to the U.S. from Singapore, citing Trump’s efforts to improve business conditions in the U.S.

Trump has praised Broadcom’s move calling it “one of the really great, great companies.”

“Mofcom will be motivated by the government to look very closely not just from a competition perspective but also from a broader industrial policy perspective,” said another Beijing-based antitrust lawyer involved in similar transactions. “You should expect Mofcom will take a very, very close look at this transaction”.

“This case will be subject to more scrutiny from the Chinese authorities (than normal),” said Faegre Baker Daniels’ Yan. “I think it’s quite likely the deal will be subject to some restrictions from Mofcom.”

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