Qualcomm meeting put off for security review of rival’s bid

SAN DIEGO — U.S. regulators ordered a delay in Qualcomm’s annual shareholder meeting, which was scheduled today, so they can review a proposed $117 billion hostile takeover bid by Broadcom for national security concerns.

The unusual move late Sunday by the interagency Committee for Foreign Investment in the United States, known as CFIUS, comes as several lawmakers called for the review.

Qualcomm shareholders were set to vote on whether to hand control of the San Diego cellular technology company to Broadcom this morning.

“The Committee on Foreign Investment in the United States issued an interim order to Qualcomm directing it to postpone its annual stockholders meeting and election of directors by 30 days,” said the U.S. Treasury Department, which chairs the committee, in a statement. “This measure will afford CFIUS the ability to investigate fully Broadcom’s proposed acquisition of Qualcomm.”

Broadcom has nominated six alternative candidates to Qualcomm’s 11-member board of directors in a hostile takeover bid. The rival chipmaker accused Qualcomm of “secretly” seeking a voluntarily foreign-investment committee review in January and failing to disclose the move to Broadcom during merger talks.

“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,” Broadcom said in a statement.

Qualcomm did not deny seeking a committee review but accused Broadcom of using misleading rhetoric “to trivialize and ignore serious regulatory and national security issues.”

“This is a very serious matter for both Qualcomm and Broadcom,” the San Diego company said in a statement. “Broadcom’s claims that the CFIUS inquiry was a surprise to them has no basis in fact. Broadcom has been interacting with CFIUS for weeks and made two written submissions to CFIUS.”

“Qualcomm’s work is too important to our national security to let it fall into the hands of a foreign company — and in a hostile takeover no less,” U.S. Sen. Tom Cotton, R-Ark., said in a statement Monday. “I raised concerns about this proposed takeover to the Treasury Department directly, and

I commend the Committee on Foreign Investment in the U.S. for putting it on hold.”

Broadcom, based in Singapore, has pledged to move its headquarters to the U.S., which it believes would remove foreign-investment committee jurisdiction. Broadcom shareholders are expected to vote on the move in early May.

Broadcom said it is run by a board of directors and senior management team consisting almost entirely of Americans. The company said it recognizes “the important role CFIUS plays in protecting our national security, and is fully committed to cooperating

with CFIUS in any review.”

Broadcom’s proposed takeover of Qualcomm would be the largest deal ever in semiconductors, creating a chip juggernaut with a leading market position in many top chips used in smartphones.

The deal was expected to face tough scrutiny from competition regulators. But over the past week there has been an increasing call for the foreign-investment committee to step in as well for security reasons.

U.S. Sen. John Cornyn, RTexas, as well as San Diegoarea U.S. Reps. Scott Peters, a Democrat, and Duncan Hunter, a Republican, sent letters to officials of President Donald Trump’s administration requesting a foreign-investment

committee review.

They were joined late Friday by five other members of Congress, led by Rep. Mike Gallagher, R-Wis.

“We cannot overstate the likely harm [from a Broadcom hostile takeover] that would result to Qualcomm, the U.S. company leading the development of 5G and other next-generation technologies, as well as to the United States security interests,” said the Gallagher letter. “A disruption of Qualcomm’s R & D efforts would in effect hand the growing competition for 5G to China.”

Previously, Broadcom has said it would walk away from its $79 per share offer to acquire Qualcomm should the annual meeting be delayed past today. But it now appears

willing to continue to pursue its bid for Qualcomm through the foreign-investment committee review, said Bernstein research analyst Stacy Rasgon in a research note.

With the committee examining the deal, Qualcomm now can work to close its pending $43 billion acquisition of NXP Semiconductors to diversify its business beyond smartphones, attempt to make progress on patent licensing disputes with Apple and try to construct a stronger case to shareholders to remain a stand-alone company, said Rasgon.

Qualcomm still is awaiting approval from regulators in China to acquire NXP. On Monday, it extended its $127.50 per share tender offer until Friday.