eBusiness Weekly
The U.S. government has ordered a national security review of Singapore-based Broadcom Ltd’s $117 billion bid for Qualcomm Inc, in an unusual move that prompted Qualcomm to delay its March 6 shareholder meeting.
The government action on Sunday highlighted growing U.S. concerns about safeguarding semiconductor technology and cast a doubt on the deal’s success. The Committee on Foreign Investment in the United States (CFIUS), which reviews deals for potential national security concerns, rarely reviews mergers before companies have clinched an agreement.
CFIUS asked Qualcomm to postpone its shareholder meeting, scheduled for Tuesday, by 30 days. Reuters reported last week that CFIUS had begun looking at Broadcom’s bid as pressure grew from politicians, including senior Republican Senator John Cornyn.
“This measure will afford CFIUS the ability to investigate fully Broadcom’s proposed acquisition of Qualcomm,” the U.S. Treasury Department, which oversees CFIUS, said in a statement.
Qualcomm said in a statement late on Monday that it was delaying its 2018 annual meeting to April 5 as a result of the CFIUS order.
Stockholders who have already voted would be able to change their votes at the meeting, it said.
The semiconductor industry is locked in a race to develop chips that power so-called 5G wireless technology, allowing the transmission of data at faster speeds. San Diego-based Qualcomm has emerged as one of the biggest competitors to Chinese companies vying for market share in the sector, such as Huawei Technologies Co, making it a prized asset.
A source familiar with CFIUS’ thinking said that if the deal was completed, the U.S. military was concerned that within 10 years, “there would essentially be a dominant player in all of these technologies and that’s essentially Huawei, and then the American carriers would have no choice. They would just have to buy Huawei (equipment).”
Additionally, U.S. officials speaking on condition of anonymity said members of Congress and Federal Communications Commission officials were concerned that Broadcom could sell part of Qualcomm to a Chinese firm. Such a move could hurt the U.S. effort to develop 5G wireless technology because of the small existing number of suppliers that build the hardware.
A CFIUS review in itself does not mean a deal will be halted. CFIUS, under former President Barack Obama and current President Donald Trump, has soured on high-tech deals, particularly involving semiconductors, or involving sensitive information about American citizens.
Part of CFIUS’ current concern, which is echoed in a letter Cornyn sent to Treasury Secretary Steve Mnuchin last week, could lie in the fact that Broadcom has failed to strike a deal with Qualcomm. Instead, Broadcom has resorted to what is essentially a hostile takeover by putting forward a slate of six Broadcom nominees for Qualcomm’s 11-member board.
Broadcom shares closed down 1.6 percent, while Qualcomm fell 1.3 percent. – Reuters
