Qualcomm requests national security review of Broadcom bid

Qualcomm requests national security review of Broadcom bid, photo AFP

Qualcomm shareholders were due to meet on Tuesday, but Broadcom said it was informed Sunday night Qualcomm secretly filed a voluntary request on Jan 29 for US regulators to investigate the deal, and was ordered to postpone the meeting for 30 days.

"It should be clear to everyone that this is part of an unprecedented effort by Qualcomm to disenfranchise its own stockholders," Broadcom said in a statement.

Qualcomm fired back in a statement, accusing Broadcom of trying to mislead shareholders and 'trivialize' US regulatory and national security issues.

"Broadcom's dismissive rhetoric notwithstanding, this is a very serious matter for both Qualcomm and Broadcom," the US chipmaker said.

The Committee on Foreign Investment in the United States (CFIUS) can review any acquisition by a foreign corporation of a US firm that may have an impact on national security, and can recommend the President block the deal.

CFIUS has blocked some deals, but frequently foreign companies withdraw once it appears a transaction will be prohibited.

CFIUS issued an interim order to Qualcomm for the shareholder meeting to be delayed for 30 days to allow time to fully investigate the proposed acquisition by Broadcom, according to a US Department of Treasury.

Broadcom said it will fully cooperate with the review, but rejected any national security concerns since it is a US-controlled company, and is in the process of relocating its headquarters back to the United States.

BOARD BATTLE

If finalised, the Broadcom-Qualcomm tie-up, estimated at US$117 billion, would be the largest merger in a sector awash with consolidation amid the development of technologies for autonomous vehicles and 5G mobile services.

Qualcomm has repeatedly rejected multiple Broadcom offers that it says undervalue the company.

Qualcomm shareholders at an annual gathering were to vote whether to replace six of the California company's 11 board members with candidates backed by Broadcom, essentially endorsing the deal.

Weeks of thrust and parry, along with tactical public statements, have left the companies' boards at odds over the unsolicited offer.

Qualcomm, which is the dominant maker of microprocessors for smartphones, says it has a bright future on its own, especially ahead of a transition to fifth-generation (5G) wireless communications networks.

The Qualcomm board has also expressed concern that any deal with Broadcom could be delayed or blocked by antitrust regulators around the world.

Broadcom has urged Qualcomm shareholders to elect all six of its nominees to the board, sending "a clear signal" supporting the takeover bid which would provide a handsome gain to shareholders of the US firm.

"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 of the delaying development.

COVETED CHIP TECH

CFIUS last year opposed the takeover of US semiconductor manufacturer Lattice by a Chinese state group backed by a US investment fund, and President Donald Trump then blocked the deal.

In the semiconductor sector, the committee - whose deliberations are secret - in 2016 recommended that then-President Barack Obama oppose a deal between the German group Aixtron and Chinese fund Grand Chip because there was a US subsidiary of the German group.

Broadcom's initial offer was already tinged by politics, coming the day after a White House meeting between Trump and Broadcom CEO Hock Tan, who promised to repatriate the company's headquarters.

Any tie-up of the two giants could reshape the fast-evolving sector of chips for smartphones and connected devices. But it would have to pass regulatory muster in several countries.

Analyst Patrick Moorhead of Moor Insights & Strategy questioned the wisdom of Broadcom buying Qualcomm.

The rival chip companies are very different in their approaches to the market, Noorhead said, comparing the tie-up to mixing "oil and water."

And, a merger would likely get tied up by regulators for a long time, he added.

Qualcomm, one of Apple's main suppliers, is currently engaged in the acquisition of the Dutch group NXP and has indicated the operation will proceed regardless of the outcome of discussions with Broadcom.

Broadcom shares lost 1.5 per cent by the close of trading in New York, while Qualcomm fell 1.1 per cent.