Broadcom’s attempt at a hostile takeover of Qualcomm has hit further strife, after US Treasury’s CFIUS ordered a full investigation into the US$140 billion-plus deal after concerns it could pose a national security risk for the United States, including handing control of 5G standards to China.
Concerns over the national security risks posed by disruption of a ‘trusted supply relationship’ with chipmaker Qualcomm, whose products are used by the Department of Defense national security programmes, among others, were also expressed by CFIUS in a letter to Qualcomm and Broadcom.
The hostile takeover bid has been an ongoing issue for the companies since November 2017 when Singapore-based Broadcom made a bid for Qualcomm which was rejected, even after Broadcom upped its price. Qualcomm then upped its bid for NXP Semiconductors, which it is currently in the process of buying, prompting Broadcom to lower its bid for Qualcomm.
Qualcomm is a key competitor to Chinese companies in the race to gain control in the 5G space.
This week’s letter from the Committee on Foreign Investment in the United States (CFIUS) stated that ‘potential national security concerns’ have been identified which ‘warrant a full investigation of the proposed transaction’.
While CFIUS noted that national security prevents all concerns being disclosed, the letter said some some of the concerns ‘relate to the risks associated with Broadcom’s relationship with third party foreign entities and the national security effects of Broadcom’s business intentions with respect to Qualcomm’.
CFIUS also raised concerns about a potential reduction in R&D spend given Broadcom’s ‘private equity-style’ plans and the long-term technological competitiveness if the deal goes ahead, saying a weakening of Qualcomm’s position would leave an opening for China to expand its influence on the 5G standard-setting process.
“Chinese companies, including Huawei, have increased their engagement in 5G standardization working groups as part of their efforts to build out a 5G technology… While the United States remains dominant in the standards-setting space currently, China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover. Given well-known US 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 CFIUS review, initiated by Qualcomm, is highly unusual for a deal that has yet to even be agreed to.
Broadcom hit out at Qualcomm, claiming the chipmaker had ‘secretly’ filed a voluntary request with CFIUS to initiate the investigation, resulting in the delay of the Annual Meeting, in ‘a blatant, desperate act… to entrench its incumbent board of directors and prevent its own stockholders from voting for Broadcom’s independent director nominees’.
The company said Qualcomm hadn’t mentioned submitting the voluntary notice in any interactions with Broadcom.
Qualcomm quickly hit back: “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.”
Broadcom, which acquired Brocade in late 2017, announced in November that it planned to to move its head office to the United States, a process the company said is ‘well underway’.