US simplifies Qualcomm decision by complex means as Broadcom is forced to wait

Washington has waded into Broadcom’s effort to buy rival chipmaker Qualcomm for $117 billion. The US foreign-investment watchdog has told Qualcomm to delay by 30 days its annual shareholder meeting, previously set for Tuesday. The agenda includes director elections that could give board control to nominees of Singapore-based Broadcom. It’s a surprising twist in an already tangled situation. But it may remove a big unknown from the equation.

Broadcom is blaming its target, saying Qualcomm sought a review by the Committee on Foreign Investment in the US (CFIUS) and didn’t tell its shareholders or its suitor. If true, it counts as one of the sneakier ways to fend off a hostile takeover. Still, the US Treasuryled CFIUS makes its own decisions.

While the committee’s latest preemptive move is highly unusual, it’s not illogical. Having decamped to Singapore in search of lower taxes, Broadcom Chief Executive Hock Tan has promised to return his acquisitive $100 billion firm to the US. That process could be completed in a few months, but for now Tan’s company is foreign, and it’s trying to make a big purchase in an important technology sector – one where US lawmakers have made no secret of their intensifying sensitivities.

CFIUS national-security reviews usually come after mergers are agreed. In this case, though, the uncommon circumstances may explain the early action. Broadcom has proposed six directors for Qualcomm’s 11-person board. Key proxy advisers have backed at least some of Broadcom’s slate, and that means the Singapore group’s nominees could end up controlling the US company’s board – before any takeover is agreed by the two firms or their shareholders.

Qualcomm gave Broadcom’s initial offer in November the cold shoulder but is now engaged in discussions, although not whole-heartedly. It’s also motivated to secure the last remaining antitrust approval for its own planned $44 billion purchase of NXP Semiconductors. Getting that deal in the bag would boost its stand-alone outlook, and CFIUS’s intervention buys more time.

If Broadcom is prepared to wait rather than walk away, though, the calculus for Qualcomm’s shareholders will become simpler. There are many other obstacles to a merger. If a decision is now delayed until Broadcom’s domicile is no longer a sticking point, that will at least remove one uncertainty.