Broadcom's hostile takeover bid for chip-making rival Qualcomm has become even more hostile now that a USA national security agency over the weekend ordered Qualcomm to delay a shareholder vote scheduled for March 6 that would have set the direction of the proposed $117 billion deal. The committee is charged with ensuring that technologies or other resources critical to national security don't fall under the control of adversaries.
Broadcom, which is attempting to get six independent directors elected.
As a result, Broadcom's business plan for Qualcomm, including any divestitures it plans in order to appease antitrust regulators, will be scrutinized by CFIUS, lawyers who advised companies on their CFIUS applications said.
The gloves are definitely coming off between Broadcom and Qualcomm, and this latest incident only helps to further inflame the tensions between the two companies.
Sources familiar with the matter say that Qualcomm does sensitive work for the U.S government, which raises concerns in lawmakers and officials saying that Broadcom could possibly sell parts of Qualcomm to weaken the USA race to 5G technology, according to the Wall Street Journal. "Better to keep it in American hands and protect American national security".
Qualcomm went on to challenge an assertion that wasn't exactly what Broadcom had asserted.
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In dueling statements, Broadcom officials claimed the investigation was undertaken at Qualcomm's request without their knowledge, while Qualcomm officials said the suggestion that the CFIUS investigation was coming as a surprise to Broadcom "has no basis in fact".
Update: Broadcom issued a second statement on Monday, making the same point. "In compliance with the CFIUS order, Qualcomm will delay its annual meeting of stockholders and election of directors for at least 30 days so that CFIUS can fully investigate Broadcom Limited's proposal to acquire Qualcomm".
U.S. Republican lawmakers on Monday backed a U.S. panel's decision to delay semiconductor firm Qualcomm Inc QCOM.O shareholder meeting to allow for a more extensive review of Broadcom Ltd's AVGO.O takeover bid.
Broadcom shares closed down 1.6%, while Qualcomm fell 1.3%. Broadcom's avgo shares dropped nearly 2% to close at $246.98. The company already is run from the United States, has many US employees, and owns critical semiconductor operations and technologies, Rasgon noted.
CFIUS is expected to gain more authority. Broadcom is the middle of moving its legal domicile back to the United States from Singapore, which should be completed in the next few months. 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.
As noted by The Wall Street Journal, the surprise move signals concerns among US government officials that a Broadcom acquisition of Qualcomm could raise national security issues and potentially affect the United States' role in the development of 5G network technology as China works to take a lead in the space.