Broadcom’s hostile takeover bid for chip-making rival Qualcomm has become even more hostile now that a U.S. national security agency over the weekend ordered Qualcomm to delay a shareholder vote scheduled for March 6 that would have set the direction of the proposed $117 billion deal.
The order by the Committee on Foreign Investment in the United States (CFIUS), which reviews deals that have potential national security implications, heightened tensions between the two companies that have been apparent since China-based Broadcom first proposed buying Qualcomm in November 2017 in what would be by far the largest deal in tech history. Delaying the Qualcomm shareholder vote by at least a month will give CFIUS more time to investigate the impact of a Broadcom takeover of Qualcomm.
In a statement March 5, Broadcom officials accused their Qualcomm counterparts of using CFIUS to slow down Broadcom’s acquisition efforts by “secretly [filing] a voluntary request with CFIUS to initiate an investigation, resulting in a delay of Qualcomm's Annual Meeting 48 hours before it was to take place. This was a blatant, desperate act by Qualcomm to entrench its incumbent board of directors and prevent its own stockholders from voting for Broadcom's independent director nominees.”
Qualcomm executives pushed back in their own statement, saying Broadcom’s response to the CFIUS order “is a continuation of its now familiar pattern of deliberately seeking to mislead shareholders and the general public by using rhetoric rather than substance to trivialize and ignore serious regulatory and national security issues.” The federal panel is an independent entity, they argued, adding that Broadcom officials shouldn’t be surprised given that the company “has been interacting with CFIUS for weeks and made two written submissions to CFIUS.”
Qualcomm officials have rejected Broadcom’s acquisition offers, saying that even an increased bid of $121 billion—which was reduced late last month after Qualcomm increased its own offer for chip maker NXP to $44 billion—was too low; that Qualcomm was well-positioned in such growth areas as 5G networking, data centers and artificial intelligence (AI); and that regulatory issues could pose a problem. Despite those issues, Qualcomm officials have met with Broadcom executives and last month kept open the possibility of continued talks over price and other concerns.
At the now-postponed meeting, Qualcomm shareholders were going to vote whether to replace six Qualcomm board directors with Broadcom-nominated candidates, a move that could accelerate the acquisition if those candidates were elected and took a majority position on the board.
In a Feb. 26 letter to Treasury Secretary Steve Mnuchin, Sen. John Cornyn, R-Texas, the second-ranking Republican in the Senate, asked Mnuchin to have CFIUS get involved given not only that a China-based company was trying to buy an American entity, but that it was doing so through a hostile takeover. In the letter, Cornyn also noted Qualcomm’s significant role in the development of 5G technologies and that the United States is competing against China in this field.
“It would be deeply concerning if foreign parties were able to acquire control of U.S. companies through proxy fights for their boards without the action first going undergoing a CFIUS review,” the congressman wrote, noting that such a move would encourage other foreign companies to also evade CFIUS overview through such means. “The U.S. is currently in a race with China in the development of 5G technologies, a race that will have profound impact on critical U.S. telecommunications infrastructure and on U.S. national security for years to come.”
Cornyn said Qualcomm is the leading U.S. company in driving 5G development, and an acquisition by Broadcom could stall that and hand the leadership of 5G R&D to Huawei, a Chinese tech firm. U.S. lawmakers in the past have called Chinese companies like Huawei and ZTE a national security threat because of their close ties to the Chinese government.
Broadcom executives last year started the process of moving the company’s headquarters from China to the United States, a move that could remove many of the hurdles in future acquisitions. It’s a move that President Trump lauded, and in their statement, Broadcom officials noted that the company is moving forward with various approvals and is on target to make the move by the end of its second fiscal year in May.
“Upon completion of the redomiciliation, Broadcom's proposed acquisition of Qualcomm will not be a CFIUS covered transaction,” they wrote, adding that Broadcom’s board of directors and senior management team comprise mostly American citizens.
Qualcomm’s own proposed acquisition of NXP is on hold while it awaits approval by Chinese regulators, that last remaining country not to give the merger its OK. Getting NXP into the fold would increase Qualcomm’s presence in such areas as 5G, the internet of things and autonomous vehicles. A combined Broadcom-Qualcomm would create the world’s third-largest chip maker, behind Samsung and Intel.