Broadcom responds to U.S. security concerns over proposed Qualcomm acquisition

Reuters

Reuters

It's been an extremely busy couple of months for both Qualcomm and Broadcom, as the latter continues to pursue a hostile takeover. The company is in the midst ofreincorporating in the USA, and has said it expects the move to be completed in the coming weeks.

Qualcomm just concluded its 5G day in San Diego, California, where it showed off a number of new demos showcasing what the new Snapdragon 845 can do.

The U.S. government's Committee on Foreign Investment in the United States (CFIUS) has ordered a national security review of the proposed deal, saying a takeover can lead to lower R&D spending and weaken Qualcomm's competitive position against Chinese companies.

The Committee on Foreign Investment in the United States has been reviewing the proposed merger by Broadcom.

CFIUS views Qualcomm as a prized US asset in the development of 5G wireless technology, which allows for the transmission of data at very fast speeds. The letter caused Qualcomm to delay a critical shareholder vote on the meeting by 30 days. But the Treasury Department expects Broadcom to scale back on long-term investment, including in R&D, if the acquisition goes through.

Broadcom used to also be a US company until it relocated to Singapore in 2015 for tax purposes, and it is in the process of reincorporating in the U.S. The company said it recognizes "the important role CFIUS plays in protecting our national security, and is fully committed to cooperating with CFIUS in any review".

Broadcom has been working to take over rival Qualcomm for weeks and the two companies were closing in on a deal before they disagreed on a price - prompting an attempted hostile takeover.

The investigation by CFIUS, which considers national security risks to foreign acquisitions of USA companies, came after Qualcomm filed a notice with the panel seeking a review.

Qualcomm's 5G chips are used by the Pentagon, and if it loses its competitive standing under the Broadcom umbrella, it could leave China's Huawei as the dominant chipmaker, Reuters reported, citing a source familiar with CIFIUS' thinking. That would have opened the door further to Broadcom taking over Qualcomm.

Qualcomm, with its Snapdragon processors, is the world's biggest maker of mobile chips and an attractive target for Broadcom. The uncertainty associated with such investigations, which are seen as politicized and offer little transparency, often dooms potential deals before a conclusion is reached.

Cornyn said on March 5 he was glad CFIUS had made a decision to review the deal, noting that "some of our worldwide rivals, like China, have been incredibly aggressive and strategic".

The panel also advised against a deal between Chinese-backed private equity firm Canyon Bridge and USA chipmaker Lattice Semiconductor Corp, leading president Trump to block the proposal in September 2017. The company is now based in Singapore, but said in November that it will move its legal headquarters back to the United States.

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