BY Richard Summerfield
According to the Committee on Foreign Investment in the United States (CFIUS), Singapore-based Broadcom Ltd’s $117bn bid for Qualcomm is a national security risk which requires a full investigation.
The decision, which was communicated in a letter to the lawyers representing the two companies from a senior US Treasury official, has complicated, and potentially jeopardised, an already contentious deal. Sending the letter is an unusual move for CFIUS, which normally opines about a transaction once it has been completed.
However, CFIUS’ recent activity reflects wider concerns over the role of Chinese acquirers in important sectors, including the technology space. The letter noted that it was important to have a well-known and trusted company “hold the dominant role that Qualcomm does in the US telecommunications infrastructure". Any loss of that competitiveness, the letter said, “would significantly impact US national security".
CFIUS also expressed concerns about the national security implications for the US if Chinese companies were able to dominate the nascent 5G market. Broadcom pledged that it would keep the US at the forefront of the 5G market in an attempt to allay the government’s concerns.
Furthermore, CFIUS believe that the merger would alter Broadcom’s relationships with foreign entities and weaken “Qualcomm’s technological leadership", which would allow Chinese companies, such as Huawei, to steal a march on their US counterparts.
“China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover,” said Aimen Mir, Treasury Deputy Assistant Secretary for Investment Security in the letter.
CFIUS also identified a number of other concerns surrounding the transaction, such as Broadcom’s reputation for cutting research spending and potential national security risks that could arise from exploiting or compromising Qualcomm’s assets through arrangements with “third party foreign entities”.
Despite CFIUS’ concerns, Broadcom remains optimistic that a deal can still be reached in time for a Qualcomm shareholder meeting due to be held later this month. Typically, CFIUS does not offer opinions involving purely domestic transactions. In November, Broadcom filed to redomicile to the US and is looking at ways to expedite the process.
“We are fully cooperating with CFIUS, and are absolutely committed to making the combined company a global leader in critical 5G and other technologies,” Broadcom said in a statement. “There can be no question that an American Broadcom-Qualcomm combination will provide far more resources for investments and development to that end. Entrusting this effort to a failing Qualcomm management who lacks the support of its owners, and that pays out much of its excess cash flow in fines as a result of serial lawbreaking, would not be in America’s long-term interests”.