08 March, 2018
The Committee on Foreign Investment in the United States, which is now looking into whether a merger would harm national security, expressed concerns that a Broadcom takeover of Qualcomm would undermine U.S. efforts to stay ahead of China in the development of 5G tech.
Treasury also cited Qualcomm's contracts with U.S. government agencies with national security responsibilities.
Qualcomm included the letter in a filing Monday with the U.S. Securities and Exchange Commission. It's unclear whether the company will attempt to install the friendly board members at Qualcomm's next meeting scheduled April 5.
Broadcom's take: It says national security concerns are overblown. Some relate to Broadcom's relationships with third party foreign entities.
5G is expected to begin rolling out in 2019, bringing ultra-fast and reliable connectivity to everything from cars to health care devices to infrastructure. The concern comes mainly from the fact that China-based Huawei has been spending money on 5G development and now holds about 10% of essential 5G patents. The U.S. remains dominant in setting standards for 5G now, but "China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover", according to the Treasury. According to the Financial Times, Broadcom, which was a US company before acquisition by Singapore's Avago Technologies, has cooperated with Huawei for long and USA politicians are concerned about this fact.
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.
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Four days later, Broadcom announced its Qualcomm bid.
For more than three years, Qualcomm's stock has been weighed down while the stock market overall has soared. He has proposed legislation to tighten CFIUS' scrutiny of deals. The USD 106 billion in debt financing arranged by Broadcom would be the largest corporate acqusition loan ever, the letter noted, putting further pressure on the company to boost profitability in order to service its debt. In a statement published Wednesday, the company hit back against the CFIUS statement and Qualcomm, while also offering an olive branch to try and appease regulators.
There are other reasons at play here, including the amount of money Qualcomm invests into research and development.
Broadcom said it is cooperating with the investigation.
An investigation by the CFIUS into a deal that has been proposed, but not yet completed, is highly unusual, and underscores the US' concerns about maintaining its dominance in semiconductors in the face of advances by China.
On Sunday, the Committee on Foreign Investment in the United States, or CFIUS, which is chaired by Treasury and reviews deals that have a national security risk, convinced Qualcomm to postpone a shareholder vote on Broadcom's bid that was scheduled for March 6.
Shares of Qualcomm fell almost 3% in NY trading Tuesday.