UPDATED 00:34 EDT / MARCH 07 2018

INFRA

Broadcom’s takeover of Qualcomm now claimed to be a national security risk

Updated:

Broadcom Ltd.’s effort to take over rival chipmaker Qualcomm Technologies Inc. has hit a new hurdle, with one arm of the U.S. government pushing back against the deal on national security grounds.

The U.S. Committee on Foreign Investment said Tuesday that Broadcom’s acquisition of Qualcomm could pose a national security risk. The convoluted claim, related to a Department of Treasury letter, is that if Broadcom buys Qualcomm, then China will fill a theoretical void left by Qualcomm no longer being a U.S. company.

Broadcom is a Singaporean company and Singapore is a longstanding and strong ally of the United States. But according to Recode, the Trump administration isn’t sure that an Asian buyer should own a big U.S. tech company.

Broadcom, however, insisted in a statement Wednesday morning that it’s “in every important respect an American company.” It said it will maintain Qualcomm’s 5G research and development resources. Moreover, it pledged to create a new $1.5 billion fund to “train and educate the next generation of engineers in the U.S.” to “ensure America’s lead in future wireless technology.”

The company couldn’t resist taking another shot at Qualcomm in the statement. “Broadcom will fund enhanced R&D through lawful business practices rather than predatory and anticompetitive behavior,” it said, “There is no truth to Qualcomm’s argument that its anticompetitive licensing practices are needed to fund a robust R&D effort.”

Broadcom first bid $70 a share, or $105 billion, for Qualcomm in November in what would be the biggest deal ever in technology, far higher than Dell Inc.’s $67 billion acquisition of EMC Corp. Even so, Qualcomm pushed back on the offer, resulting in Broadcom upping the number to $122 billion in February. The deal included a sweetener, an $8 billion termination fee that Broadcom would pay should Qualcomm accept the takeover but then regulators disapproved it.

Broadcom said in a statement Monday that it had to delay its annual shareholders’ meeting on short notice after learning Sunday that Qualcomm had asked for the CFIUS investigation. “This was a blatant, desperate act by Qualcomm to entrench its incumbent board of directors and prevent its own stockholders from voting for Broadcom’s independent director nominees,” Broadcom said in the statement Monday. “This can only be seen as an intentional lack of disclosure — both to Broadcom and to its own stockholders.”

For its part, Qualcomm called Broadcom’s claims misleading. “Broadcom’s dismissive rhetoric notwithstanding, this is a very serious matter for both Qualcomm and Broadcom,” Qualcomm said in a statement. “Broadcom’s claims that the CFIUS inquiry was a surprise to them has no basis in fact. Broadcom has been interacting with CFIUS for weeks and made two written submissions to CFIUS.” The company also postponed its annual meeting from Sunday to April 5.

The deal’s pushback on national security grounds is seen by some as trade posturing by the Trump administration against China. President Trump announced a punitive tariff against steel imports earlier this week in what Forbes described as more of a political move than an intention to start a trade war.

With reporting from Robert Hof

Photo: Maurizio Pesce/ Wikimedia Commons

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