U.S. move puts Broadcom bid in jeopardy
Government sees national security risk in Qualcomm deal
The U.S. government said Broadcom’s proposed acquisition of rival chipmaker Qualcomm could pose a national security risk and called for a full investigation into the hostile bid.
The move complicates an already contentious deal and increases the likelihood that Broadcom, which is based in Singapore, will end its pursuit of San Diego-based Qualcomm. Such an investigation is often a death knell for a corporate acquisition.
A government panel, the Committee on Foreign Investment in the United States, or CFIUS, noted, in part, that the potential risk was related to Broadcom’s relationships with foreign entities, according to a letter from a U.S. Treasury official. It also said that the deal could weaken “Qualcomm’s technological leadership,” giving an edge to Chinese companies like Huawei.
“China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover,” the official said in the letter.
The letter and the public call for an investigation reflects a newly aggressive stance by CFIUS. In most cases, the panel operates in secret and weighs in after a deal is announced. In this instance, CFIUS, which is made up of representatives from multiple federal agencies, is taking a proactive role and investigating before an acquisition agreement has even been signed.
The move reflects increased worries about overseas deals and about Chinese influence in central industries like technology. CFIUS has recently blocked several deals by Chinese buyers, including Ant Financial’s proposed takeover of MoneyGram, a money-transfer company.
The panel began to scrutinize tech-related foreign investments more closely during the Obama administration, as Chinese companies and investors began rapidly funneling money into U.S. firms. Several lawmakers have also pushed to expand the scope of CFIUS’ authority.
“The Trump administration turbocharged it,” said Tony Balloon, leader of the corporate China practice at law firm Alston & Bird. “There is now a recognition in government that foreign investors, particularly from China, are getting more and more sophisticated on how they get access to technology in the U.S.”
In the letter from the Treasury official, the government said it was important to have a well-known and trusted company “hold the dominant role that Qualcomm does in the U.S. telecommunications infrastructure.” Any loss of that competitiveness, the letter said, “would significantly impact U.S. national security.”
Earlier this week, U.S. regulators asked Qualcomm to delay an annual shareholder meeting to give them more time to investigate the takeover bid.
Broadcom had sought to pave the way for its hostile bid by changing its headquarters to the United States, an announcement that CEO Hock Tan made alongside President Donald Trump at the White House last year. That reincorporation is due to be completed by May.