Bargaining chip? China seen closely scrutinizing
Qualcomm, Broadcom deal
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[November 07, 2017]
By Adam Jourdan
SHANGHAI (Reuters) - A potential
mega-merger between chipmaker Broadcom Ltd <AVGO.O> and U.S. rival
Qualcomm Inc <QCOM.O> is likely to face stern scrutiny in China,
antitrust lawyers say, amid a strategic push by Beijing into
semiconductors.
Broadcom made an unsolicited $103 billion bid for Qualcomm on Monday,
aimed at creating a $200-billion-plus behemoth that could reshape the
industry at the heart of mobile phone hardware.
But Chinese regulatory approval could be a hold-up. Beijing and
Washington have sparred over technology deals, including in chips, with
the Committee on Foreign Investment in the United States (CFIUS)
knocking back a number of takeovers involving Chinese firms this year.
The thorny topic is likely to come up when U.S. President Donald Trump
visits China this week - with Qualcomm executives in tow.
The merger would face a lengthy review from the anti-monopoly unit of
China's commerce ministry, due to strategic concerns, the huge size of
the deal and because Qualcomm has come under fire before in the country
over 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.
Qualcomm agreed to pay a record fine of $975 million in China in 2015 to
end a probe into anti-competitive practices related to so-called "double
dipping" by billing Chinese customers patent royalty fees in addition to
charging for the chips.
China is making a major push to develop its own semiconductor industry
under local champions such as Tsinghua Unigroup and Fujian Grand Chip
Investment to help cut reliance on global operators including Qualcomm,
Samsung Electronics Co Ltd <005930.KS> and Intel Corp <INTC.O>.
Beijing's push adds a political edge to the case.
"(Mofcom) will consider industry security for the whole country, as the
semi-conductor industry has strategic importance to China," a second
Shanghai-based antitrust lawyer said, asking not to be named because
Qualcomm was a client of his firm.
China chipmaker rivals could also raise concerns about the deal, he
added, putting pressure on Mofcom's Anti-Monopoly Bureau to act. The
most likely outcome would be restrictions on the deal rather than it
being blocked, he said.
Firms pursuing major takeovers must notify China before closing a deal
if the merging companies' combined global turnover in the previous year
exceeded 10 billion yuan ($1.5 billion) or their combined China income
exceeds 2 billion yuan - both easily hit in this case.

Mofcom did not immediately respond to a faxed request for comment.
[to top of second column] |

A sign on the Qualcomm campus is seen, as chip maker Broadcom Ltd
announced an unsolicited bid to buy peer Qualcomm Inc for $103
billion, in San Diego, California, U.S. November 6, 2017.
REUTERS/Mike Blake/File Photo

INDUSTRIAL POLICY
The Shanghai-based antitrust lawyer said the size and complexity of the deal -
and potential sensitivities - meant it would likely have to go through all three
phases of Mofcom's merger approval, on paper a 180-day process.
While Broadcom and Qualcomm have little overlap, the firms are looking to
complete a $5.5 billion purchase of Brocade Communications Systems Inc <BRCD.O>
and a $38 billion acquisition of NXP Semiconductors NV <NXPI.O> respectively.
Mofcom approved the Brocade acquisition with conditions earlier this year with
after a five-month investigation.
Qualcomm declined to comment.
"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," a Broadcom spokeswoman said, referring to the patent charging
issue.
Last week, Broadcom CEO Hock Tan said the company would move its headquarters to
the United States from Singapore, citing Trump's efforts to improve business
conditions and reforming tax. Trump praised the move, calling Broadcom "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.

The lawyer, who asked not to be named due to the sensitivity of the matter, said
Beijing had been making a big push in the area including with deals to buy
international firms - some successfully and some which had hit obstruction.
"You should expect Mofcom will take a very, very close look at this
transaction," he said.
Mofcom has been flexing its muscle more on global deals over the last few years,
lawyers say, including putting restrictions on a deal between Dow Chemical and
DuPont earlier this year.
However, blocking deals outright was a rare step for Mofcom, especially when
Chinese companies were not directly involved, several Chinese lawyers said.
Instead, the firms may be asked to sell certain business units or make pledges
to Chinese partners as conditions for it going ahead.
"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."
(Reporting by Adam Jourdan in SHANGHAI; Additional reporting by Liana Baker in
SAN FRANCISCO and Yawen Chen in BEIJING; Editing by Lincoln Feast)
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