Why CFIUS Is Intervening in Broadcom's Qualcomm Bid

Why CFIUS Is Intervening in Broadcom's Qualcomm Bid

Why CFIUS Is Intervening in Broadcom's Qualcomm Bid

Reps from Broadcom did not immediately respond to requests for comment.

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.

A federal regulatory panel has concluded that Broadcom's successful hostile takeover attempt of Qualcomm - or any potential merger between the two companies - "could pose a risk to the national security of the United States", according to a letter from the Treasury Department, dated March 5.

Some on Wall Street and in government have been vociferously against the proposal, partly because of the idea that Broadcom might cut Qualcomm jobs, but also because of the importance of the companies' products-chips for telecommunications equipment-in the upcoming wave of "5G" mobile broadband technology. It seems that Qualcomm contacted U.S. investment authorities to launch an investigation, which incidentally led to Qualcomm's annual shareholders meeting being delayed. Broadcom shareholders are expected to vote on the move in early May. The company will complete a corporate restructure and be headquartered in the U.S.by May 6, 2018.

Qualcomm is known for inventing the 2G and 3G wireless network technology that's used by carriers like Verizon and Sprint.

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What's at stake: US-based Qualcomm is a leader in 5G wireless tech for things like driverless cars.

Broadcom has nominated six alternative candidates to Qualcomm's 11 member board of directors in a hostile takeover bid. The Committee is particularly concerned that if Qualcomm does not maintain its position as one of the top investors in semiconductor research, it could lose its leading position in helping to determine worldwide industry standards. He has proposed legislation to tighten CFIUS' scrutiny of deals. Reuters reported last week that CFIUS had begun looking at semiconductor firm Broadcom's bid as pressure grew from politicians, including senior Republican Senator John Cornyn.

Broadcom first bid $70 a share, or $105 billion, for Qualcomm in November in what would be biggest deal ever in technology, far higher than Dell Inc.'s $67 billion acquisition of EMC Corp. "Chinese companies, including Huawei [Technologies], have increased their engagement in 5G standardization working groups as part of their efforts to build out a 5G technology". "Broadcom's dismissive rhetoric notwithstanding, this is a very serious matter for both Qualcomm and Broadcom", Qualcomm said in a statement. The uncertainty associated with such investigations, which are seen as politicized and offer little transparency, often dooms potential deals before a conclusion is reached.

CFIUS can approve or propose changes to deals, but only the president can block a transaction on national security grounds.

CFIUS's ability to intervene in the merger could disappear if Broadcom moves its headquarters to the USA, as it promised to do at a public White House ceremony in November.

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