The U.S. government has ordered a national security review of Singapore-based Broadcom’s $117 billion bid to acquire U.S. chipmaker Qualcomm, in an unusual move that prompted the latter to delay its March 6 shareholder meeting.
The government action on March 4 highlighted growing U.S. concerns about safeguarding semiconductor technology and cast a doubt on the deal’s success. 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.
CFIUS asked Qualcomm to postpone its shareholder meeting, scheduled for Tuesday, by 30 days. Reuters reported last week that CFIUS had begun looking at semiconductor firm Broadcom’s bid as pressure grew from politicians, including senior Republican Senator John Cornyn.
“This measure will afford CFIUS the ability to investigate fully Broadcom’s proposed acquisition of Qualcomm,” the U.S. Treasury Department, which oversees CFIUS, said in a statement.
Senior U.S. Treasury official Aimen N. Mir also said in a letter to the companies dated March 5 and released by Qualcomm the following day that the CFIUS was concerned about risks associated with Broadcom’s relationships with third party foreign entities.
Qualcomm said in a statement late on March 5 that it was delaying its 2018 annual meeting to April 5 as a result of the CFIUS order.
Stockholders who have already voted would be able to change their votes at the meeting, it said.
The semiconductor industry is locked in a race to develop chips that power so-called 5G wireless technology, allowing the transmission of data at faster speeds. San Diego-based Qualcomm has emerged as one of the biggest competitors to Chinese companies vying for market share in the sector, such as Huawei Technologies Co., making Qualcomm a prized asset.
A source familiar with CFIUS’ thinking said that if the deal was completed, the U.S. military was concerned that within 10 years, “there would essentially be a dominant player in all of these technologies and that’s essentially Huawei, and then the American carriers would have no choice. They would just have to buy Huawei (equipment).”
In recent years, Huawei has forged closer commercial ties with big telecommunication operators across Asia, the Americas, and Europe.
Additionally, U.S. officials speaking on condition of anonymity said members of Congress and Federal Communications Commission officials were concerned that Broadcom could sell part of Qualcomm to a Chinese firm. Such a move could hurt the U.S. effort to develop 5G wireless technology because of the small existing number of suppliers that build the hardware.
A CFIUS review in itself does not mean a deal will be halted. CFIUS, under former President Barack Obama and current President Donald Trump, has soured on high-tech deals, particularly involving semiconductors, or involving sensitive information about American citizens.
In January, Chinese firm Ant Financial canceled its bid to acquire U.S. money transfer company MoneyGram, after CFIUS rejected the deal, citing concerns over the safety of data that can be used to identify U.S. citizens. The panel also advised against a deal between Chinese-backed private equity firm Canyon Bridge and U.S. chipmaker Lattice Semiconductor Corp, leading president Trump to block the proposal in September 2017.
Cornyn said on March 5 he was glad CFIUS had decided to review the deal, noting that “some of our international rivals, like China, have been incredibly aggressive and strategic.”
“I support the idea that the committee on foreign investment takes a close look at that to see that American interests are protected,” he added.
Part of CFIUS’ current concern, which is echoed in a letter Cornyn sent to Treasury Secretary Steve Mnuchin last week, could lie in the fact that Broadcom has failed to strike a deal with Qualcomm. Instead, Broadcom has resorted to what is essentially a hostile takeover by putting forward a slate of six Broadcom nominees for Qualcomm‘s 11-member board.
Broadcom has struggled to complete its proposed deal to buy Qualcomm as the latter has resisted, citing several concerns including the price offered and potential antitrust hurdles.
Broadcom said on March 5 that CFIUS’ intervention was the result of secret moves made by Qualcomm on Jan. 29 to seek an investigation into the offer, which Qualcomm‘s board has said significantly undervalues the company.
But Qualcomm, in a press statement, said “Broadcom’s claims that the CFIUS inquiry was a surprise to them has no basis in fact” and that Broadcom had been interacting with CFIUS “for weeks.”
Before Broadcom disclosed its buyout offer for Qualcomm in November, Trump himself announced Broadcom’s plan to shift its headquarters back to the United States after a White House meeting with CEO (chief executive officer) Hock Tan, a Malaysia-born businessman.
Trump praised the move at the time, calling Broadcom “one of the really great, great companies.”
Republican U.S. Senator Tom Cotton said on Monday he backed the panel’s decision to delay a Qualcomm shareholder meeting, saying: “Qualcomm‘s work is too important to our national security to let it fall into the hands of a foreign company.”
From Reuters. Epoch Times staff member Annie Wu contributed to this report.