A split appears to have developed within the Trump administration over whether a federal committee that reviews the national security implications of foreign investments should get involved in Broadcom‘s hostile takeover attempt to acquire Qualcomm.
The Committee on Foreign Investments in the United States, known as CFIUS, held a meeting Tuesday in Washington and according to a report in the Wall Street Journal, Treasury Secretary Steve Mnuchin said he wasn’t sure if the committee had jurisdiction over Broadcom’s bid for the San Diego-based chipmaker. CFIUS is made up of 14 federal departments and agencies and is chaired by the Secretary of the Treasury
By contrast, representatives of the Justice Department, Homeland Security, Defense and Energy called for CFIUS to get involved, the report said, citing concerns a Broadcom acquisition may lead to critical pieces of Qualcomm being sold off. That, the agency representatives warned, could result in the U.S. falling behind China when it comes to developing cutting-edge advancements in the tech sector, which could pose security risks.
Broadcom’s $117 billion bid — the largest ever in the semiconductor industry — may put the Trump administration in a ticklish position. Last November, Broadcom CEO Hock Tan announced at a media event at the White House that he would move the company to the U.S.
“We are making America home again,” Tan said, with Trump standing in the background.
While Broadcom’s U.S. headquarters is located in San Jose, its legal domicile is Singapore.
But a review by CFIUS could jeopardize Broadcom’s bid to place six directors on Qualcomm’s 11-seat board. Qualcomm’s shareholders will vote for either its existing board or the six alternative candidates put forth by Broadcom at Qualcomm’s annual meeting March 6.
“As Secretary you have the ability, at this moment, to ensure America’s security for a generation by protecting against a takeover of American technology that would do nothing short of crippling our defense against China,” Hunter said in a letter to Mattis,
“I respectfully request that your personally advocate for CFIUS to act quickly and block any action on this sale pending a full security review and investigation.”
Rep. Scott Peters, D-San Diego, has also called for CFIUS to review the potential takeover.
“I would listen to the Department of Defense rather than the Secretary of the Treasury; this is a national security issue,” Peters said in a telephone interview Thursday. “You have to stand up at this point and at least hit pause on this and make sure the country has time to review this for its national security implications.”
Sen. John Cornyn, R-Texas, has also called for CFIUS to weigh in. Cornyn is the No. 2 ranking Republican in the Senate.
In a letter to Mnuchin, Cornyn said Qualcomm is “the only U.S. company that is currently capable” of leading in the development of 5G wireless technology.
“The United States is currently in a race with China in the development of 5G technologies, a race that will have profound impact on critical U.S. telecommunications infrastructure and U.S. national security for decades to come,” Cornyn wrote.
Qualcomm has made 5G a key piece of its growth story amid Broadcom’s push to acquire the company. It has been investing in 5G research for nearly a decade and played a leading role in the standards setting process. Rivals such as Intel and China’s Huawei hope to break Qualcomm’s cellular radio dominance as the wireless industry transitions to 5G.
Supporters of Broadcom’s bid say 90 percent of the company’s shareholders are U.S. citizens, 90 percent of the company’s board is based in the U.S. and Tan himself is a U.S. citizen.
“CFIUS is not implicated unless a corporation comes under the ‘control’ of a foreign person,” a company spokesman said in a statement to the Union-Tribune.
The statement said Broadcom “is committed to reincorporating from Singapore to the U.S. and expects to receive the required approvals to do so” by May 6.
Broadcom backers also point out that, if selected, new board members at Qualcomm would have fiduciary responsibilities to do what is best for Qualcomm, not any other entity.
That does not assuage Peters’ concerns.
“Their view for what’s best for Qualcomm is to break it up and do short-term raider actions that would raise the stock price,” Peters said. “That’s why you do the review before this happens. There’s no reason to take this risk as a country.
Should CFIUS determine that Broadcom is a U.S. company, the agency would not have jurisdiction to review the case.
If shareholders approve the takeover, the deal would be under the spotlight of antitrust regulators in at least a dozen countries, as well as national security agencies in the U.S. and elsewhere.
A spokeswoman for Qualcomm declined comment Thursday.
With the Qualcomm shareholders meeting just days away, is it too late for CFIUS to get involved?
“It’s not too late, far from it,” Blanchard said. “It shows they’re taking it seriously, they’re seeing that this is a big deal, that it’s not just a hypothetical anymore … Essentially the watchdogs are giving some thought to the positive and potentially negative outcomes that can emerge.”
CFIUS usually reviews attempts by foreign entities to buy controlling interests in U.S. companies, not necessarily attempts to take over the control of a company’s board.
But the Wall Street Journal report said some members of the CFIUS are concerned a Broadcom takeover could set a precedent for other foreign-based companies to try the same thing.
They also raised national security concerns because Qualcomm also does sensitive work for the U.S. government.
Much of the work CFIUS conducts is done in secret.
In 2015 – the last year available – CFIUS reviewed 143 proposed mergers and launched deeper probes into 66 of them, according to the panel’s 2017 unclassified report.
Eleven deals were granted approval after the firms agreed to adopt “mitigation measures” to satisfy national security concerns.
In 13 cases, however, the parties withdrew from the process. Nine refiled later, but three abandoned their cases and another ended its deal for commercial reasons outside of the CFIUS review.
One refiled case was rejected outright by the CFIUS panel.
Reviews are conducted confidentially and the Treasury Department never releases details that would identify which firms can’t overcome CFIUS muster.
Between 2013 and 2015, Chinese firms dominated the ranks of foreign investors seeking CFIUS approval, notching 74 transactions.
The next closest country was Canada, with 49.
Staff writer Mike Freeman contributed to this report.
(619) 293-1251 Twitter: @robnikolewski
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