Beijing's wrath may sink Broadcom's $105 bln deal


By Robyn Mak

(The author is a Reuters Breakingviews columnist.)

HONG KONG, Jan 10 (Reuters Breakingviews) - Beijing's wrath could sink Broadcom's bold $105 billion plan. Chinese handset-makers are rightly worried about the acquisitive chipmaker's bid for rival Qualcomm. At the least, Broadcom will probably need to make promises on pricing and other matters. Given recent U.S. hostility towards Chinese companies, even the nuclear option of an outright veto cannot be ruled out.

The concerns are valid. Qualcomm dominates the market for mobile chipsets, or the all-in-one chips on which cheaper smartphones rely. This makes the U.S. group vital to the likes of Oppo and Vivo, which lack the resources and technology to build their own chips. Under a new owner, Qualcomm's customers might have to renegotiate chip and royalty prices. Broadcom's reputation for cost-cutting doesn't help: it might slow development of new designs as well driving a harder bargain with customers.

Broadcom boss Hock Tan would probably have to offer some assurances to gain approval from Chinese regulators. In August, the powerful Ministry of Commerce, which examines antitrust issues from mergers and acquisitions including foreign deals, imposed conditions on Broadcom's$5.5 billion purchase of network-gear specialist Brocade, including a commitment to retain existing terms. If the demands for a Qualcomm merger are too onerous, Tan might prefer to walk away.

A much punchier outcome would be for Beijing to reject the purchase outright. Such a forthright intervention in a massive Western deal would be both aggressive and highly unusual, although in 2014 Mofcom killed P3, a European shipping alliance.

That said, both America and China view semiconductors as highly strategic. And in the last few days, China's technology industry has suffered two dubious setbacks in the United States: Jack Ma's$1.2 bid for MoneyGram was effectively vetoed on security grounds, and a deal to sell Huawei phones via U.S. carrier AT&T fell apart. Retaliation is a real risk.

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- Executives from Chinese smartphone-makers Oppo and Vivo told the Wall Street Journal they were opposed to a potential merger between chipmakers Broadcom and Qualcomm. In an article published on Jan. 9, they raised concerns about possible price hikes and cuts to Qualcomm's spending on research and development.

- Rival Xiaomi also has reservations about the merger, according to the newspaper.

- Qualcomm's board rejected a $105 billion cash-and-stock offer from Broadcom on Nov. 13, saying it "dramatically" undervalued the U.S. company. On Dec. 4, the U.S.-Singaporean suitor announced plans to propose 11 directors for Qualcomm's board.

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This article appears in: World Markets , Stocks , Economy
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