Broadcom hits back against USA government concerns with $1.5 billion R&D fund

Katrina Barker
March 8, 2018

In a move that underscores Washington's tilt toward increasingly protectionist measures, the Monday that Singapore-based chipmaker Broadcom's proposed acquisition of rival Qualcomm may pose a national security risk.

Qualcomm declined to comment on Broadcom's Wednesday statement.

Earlier this week, Qualcomm (NASDAQ: QCOM) announced that its annual shareholders meeting would be pushed back to April 5, as the US Committee on Foreign Investment made a decision to spend some time analyzing the potential deal, to make sure there are no major drawbacks. Theres always the possibility that Broadcom will sell off parts of Qualcomm after the acquisition.

Qualcomm deal didn't have enough drama of its own, the American Committee on Foreign Investment (CFIUS) joined the fray and effectively stopped any possible takeovers, the media are reporting this Monday. Qualcomm said in response that Broadcom misinterpreted the public's and investors' mind while ignoring national security issues and regulatory matters. But in light of the heat this week from Washington, Broadcom is now aiming to be complete the move to the USA in April. In addition, our assessment includes the revie'W of letters to CFIUS submitted by Broadcom on February 21,2018, and March 2, 2018.

Broadcom was based in the United States until 2016, when it was acquired by Singapore-based Avago. Broadcom shareholders are expected to vote on the move in early May. However, Broadcom's attempt for the hostile M&A ran into a brick wall. 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". 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. He has proposed legislation to tighten CFIUS' scrutiny of deals. But over the past week there has been an increasing call for CFIUS to step in as well for security reasons.

Reuters reported last week that CFIUS had begun looking at Broadcom's bid as pressure grew from politicians, including senior Republican U.S. Senator John Cornyn.

The US is concerned that the deal would weaken Qualcomm's position as a global telecoms leader, particularly if Broadcom uses its "private-equity" style approach to Qualcomm. "A disruption of Qualcomm's R & D efforts would in effect hand the growing competition for 5G to China".

In this case, Qualcomm had rejected Broadcom's offer, noting that the sale price was too low. But Broadcom's announcements are starting to smack of reactive desperation as the political game turns against it.

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