Government says Broadcom takeover of Qualcomm could threaten national security

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Government says Broadcom takeover of Qualcomm could threaten national security

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.

A view of the US Treasury building, seen in Washington, DC on June 21, 2017.

Some of the USA government's concerns relate to risks associated with Broadcom's relationships with foreign entities, Aimen Mir, the Treasury's deputy assistant secretary for investment security, said in the letter, without identifying who those parties might be.

"Given well-known USA national security concerns about Huawei and other Chinese telecommunications companies, a shift to Chinese dominance in 5G would have substantial negative national security consequences for the United States". The issues mentioned in the CFIUS correspondence dealt with Broadcom's habit of paring spending on research, and fears that the deal could result in security risks to the USA if Qualcomm's assets are exploited by "third party foreign entities".

Right now, Qualcomm is the "current leading company in 5G technology development and standard setting", according to the memo.

CFIUS has imposed an order to investigate the proposed acquisition and delay the meeting for 30 days, according to an emailed statement Monday.

In recent years, Huawei has forged closer commercial ties with big telecommunication operators across Asia, the Americas, and Europe.

CFIUS' intervention was unusual in that the panel typically reviews signed deals. Still, the deal cant go on without an okay from CFIUS (and later other regulatory bodies will get involved too). President Trump a year ago blocked a Chinese-backed takeover of Lattice Semiconductor Corp. because of the importance of semiconductors to the USA government and China's role in the proposed acquisition.

The review of the Broadcom deal illustrates the USA government's expanding focus on the competitiveness of the national semiconductor industry as China advances, regulatory experts said.

The board of Qualcomm have made no secret of its reluctance to do a deal with Broadcom, which is now pressing ahead with a hostile takeover.

Bloomberg reported Monday that Broadcom was on course to win all six of the seats it is seeking on Qualcomm's 11-member board, giving it a majority slate at the chipmaker based on a count of more than half of the votes already cast.

Broadcom has struggled to complete its proposed deal to buy Qualcomm as the latter has resisted, citing concerns including the price offered and potential antitrust hurdles.

Qualcomm stated on 5 March that "Broadcom's claims that the CFIUS inquiry was a surprise to them has no basis in fact". Talks grew more contentious a few weeks later when Broadcom lowered its buyout offer for Qualcomm to approximately $117 billion, making "an inadequate offer even worse".

Broadcom still is moving ahead, and the company believes it can work things out with the CFIUS in time for Qualcomm stockholders to vote for a new Board run by Broadcom.

Broadcom is headquartered in Singapore, but said in November it would move its legal headquarters back to the US. Broadcom just has to wait, move back to the U.S., and that will be one obstacle it does not have to worry about. The company points out that its CEO is an American, it's in the process of moving its headquarters to the U.S., and it and Qualcomm have institutional shareholders in common.

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